The UAE Government is losing around $150 million (Dh551m) annually to illegal trade in cigarettes, as almost one in two sold in the country is either counterfeit or evades duty, a senior industry executive has said.
“Around six per cent of the global cigarette market is illegally supplied, either as a counterfeit product or duty-not-paid. That accounts for 300 billion cigarettes annually. Governments around the world lose $20bn a year in excise and other taxes as a result of illicit cigarette trade,” Michael Prideaux, Director of Corporate and Regulatory Affairs at British American Tobacco (BAT) told Emirates Business.
“In the UAE, the revenue lost by the government from tax evasion by illegal cigarette manufacturers and suppliers is around $150m in a year. Almost half the cigarettes sold in the UAE are illegal. That is the highest penetration of illegal cigarettes for a country in the world, followed by countries such as the United Kingdom and Brazil, where penetration is around 25 and 30 per cent of the total market, respectively,” said Prideaux, whose company BAT claims to own 17 per cent of the global cigarette market.
Illicit cigarette trade has three components, according to Prideaux.
“There’s counterfeit cigarettes, tax-evaded products and products that are of inferior quality and pose a greater health risk than regulated cigarettes.”
Prideaux said the trade was being run by organised crime syndicates rather than amiable amateurs, making the challenge even more serious. “Our message to consumers is that while products pose an even greater health risk, they are also putting money in organised crime by buying such counterfeit products.”
Prideaux said the main reason for the continued growth of such illicit products in the Gulf was affordability. “With such high numbers of migrant labour, the propensity for consuming cheap products is relatively high. More than the counterfeits, it’s the duty-evading products which pose the bigger challenge in the region,” Prideaux said.
“Sometimes, such products are sold at a price less than the duty.”
The main channels for illegal cigarettes coming into the Gulf originate in China and from bordering countries, Prideaux said. BAT loses between $500m and $700m a year due to the illegal market, according to Prideaux. “We have a 17 per cent of the global market. If you consider the same share for the 300 billion cigarettes sold illegally, it would amount to between $500 and $700 million.”
According to Prideaux, countering illegal trade of cigarettes depends on three factors. “You need the intelligence or data, which companies like ours can provide. The second thing you need is political will, which is definitely strengthening in the Middle East. The third factor is enforcement resources and punitive measures, which is crucial in acting as a deterrent to criminals engaging in trade.”
“The margins on illegal cigarettes is the same as illegal drugs but the penalties are much lighter. That is something law enforcement agencies need to look at in curbing this trade.”
Prideaux said the enforcement resolve is getting stronger, especially in the UAE. “The authorities are beginning to realise not just the monetary losses resulting from the illegal trade, but also the health and safety risks,” he said.
The total value of counterfeiting and piracy globally is pegged at around $200bn. Going by that figure, illegal cigarette trade accounts for 10 per cent of the overall counterfeiting.
Going forward, Prideaux said the integration of laws across different states within a country as well as a global resolve to curtail illegal trade will be crucial.
“Counterfeiting is a minor problem in the UAE, compared to duty evasion. One of the things we are doing is to get the government to set a minimum price to sell cigarettes.
“Even if a portion of the $150m of revenue lost annually is put back into developing enforcement, it would pay back,” he said.