Illegal sale of cut tobacco is on the rise in Eastern and Southeastern Europe, depriving state budgets of millions of euros in unpaid taxes.
The EU’s anti-fraud office OLAF says the reasons for the increase are not currently clear, while the Commission is considering extending the excise system to raw tobacco to address the situation.
‘Bulk’ or ‘loose’ tobacco is a type of tobacco usually sold in non-branded packs or bags on the black market. It can be used in the counterfeit cigarette production but also legally in ‘Roll Your Own’ (RYO) cigarettes.
According to a study published last December by Crime & Tech, a spin-off company of the Università Cattolica del Sacro Cuore and Transcrime, the trend of illicit trade in bulk tobacco is on the rise. In the whole of Europe, more than 48% of the total volume of cut tobacco in 2015 was consumed illegally.
In the EU alone, the amount of illegally sold bulk tobacco consumed in eight member states accounted for 32.2% of the total cut tobacco consumption.
In at least nine European countries, seven of which are in the Balkans, where tobacco growing is a tradition, illegal bulk tobacco accounts for more than half of the total amount of cut tobacco consumed. The countries are Montenegro, Serbia, Bosnia and Herzegovina, Poland, Croatia, Slovakia, Albania, Kosovo and Bulgaria.
Massive tax losses
In addition, the study estimates that the illegal trade of bulk tobacco generates a shortfall of nearly €1 billion in tax income for the member states.
Poland has already been severely hit by illicit trade in cigarettes and bulk tobacco further worsened the situation.
In Croatia, the newest EU member, the potential revenue loss is estimated at €88.9 million with bulk tobacco representing a whopping 84.9% of the share of fine cut tobacco consumption.
OLAF: The situation is unclear
Contacted by EURACTIV, OLAF’s press office stressed it was aware of the results of the study and the increase of bulk tobacco seizures in Europe.
“However, the reason for that increase is not currently clear,” OLAF said in a written reply. It has yet to be clarified whether this is mainly a domestic problem concerning tobacco growers in some EU member states or if there are wider implications involving illegal imports from third countries, it added.
“According to our information, the main countries affected in the EU were identified as Poland, Greece, Croatia, Bulgaria, Hungary, Romania, Slovakia and Slovenia,” OLAF emphasised.
Extending the excise system?
The EU’s Budget Commissioner Günther Oettinger recently replied to a parliamentary question on the issue by recognising that smuggling of bulk tobacco was a “growing and worrying phenomenon”.
In an effort to address the situation, the Commission is carrying out a review of its directive on the excise duty applied to manufactured tobacco, he said.
“One of the issues the Commission is looking at in that context is whether to extend the excise system to raw tobacco, which is currently exonerated from excise duties,” Oettinger noted.
A Commission spokesperson told EURACTIV that EU member states have instructed the executive to review the current rules governing excise duty on tobacco. A public consultation to gather views on the possible options for a revision of the rules has now finished.
“But before taking any decisions, we also need to carry out an impact assessment and a lot more technical work,” the spokesperson stressed, underlining that it was too early to predict the conclusions of this review.
“The Commission will carefully listen to EU governments and fully consider their requests and views […] we would also recall that any proposal would need the unanimous support of all 28 EU governments for it to be approved,” the EU official added.
Sources familiar with the issue have told EURACTIV that adding a particular product to the excise system does not necessarily mean putting an extra tax on them but simply makes them easier to track.
‘Extending the excise system’ refers to the Excise Movement and Control System (EMCS) which monitors the movements of excise goods within the EU until the duties are paid or the goods are exported.
The idea to extend the excise system to raw tobacco would provide more information on the movement of raw tobacco and help the fight against illicit trade.
In practice, this would mean that raw tobacco would become an excise good with a zero rate, EURACTIV has been informed.
The same sources explained that this option is just one of the ideas but the benefits of enhanced control on one hand and administrative burden and compliance cost on the other would need to be weighed carefully.