The grey market accounts for as much as 25 percent of the total consumption of tobacco products. It is not only a cause of great losses for the economy, but also an unfair and illegal competition for entrepreneurs who pay their taxes in, create jobs and invest in Poland. In order to prevent a devastation of the state budget and Polish business, Employers of Poland have organized the fourth edition of the „Zatrzymać przemyt” (“Stop smuggling”) campaign.
REPORT BY EMPLOYERS OF POLAND
The fourth installment of the „Stop Smuggling” campaign is aimed at identifying areas particularly vulnerable to the impact of the grey market and draw attention to new methods of evading or minimizing the excise for tobacco products. The “Grey market for tobacco products in 2011-2014. New trends and threats” report prepared by Paweł Gembicki PhD, expert of Employers of Poland, is a part of this campaign.
– Due to fiscal conditions and geography, the tobacco product market in Poland is particularly vulnerable to the existence of the grey market. Every bad decision in this regard causes significant losses for the state treasury. This year, officials of the Ministry of Finance estimated them at 4.6 bln PLN – says Andrzej Malinowski PhD, president of Employers of Poland. – We hope that the report will contribute to the debate on the need for changes and the direction in which they should go in order to provide stable and predictable conditions on the Polish market. We will use our knowledge and experience for everyone who initiates changes contributing to restricting the grey market in Poland – he adds.
The tobacco product market in Poland de facto consists of two segments: the legal market (industrially produced cigarettes, cigars, cigarillos and smoking tobacco) and the grey market. It makes up as much as 25 percent of the total consumption of tobacco products. For this reason, the legal market has been in decline in the last two years – in 2006-2012 consumption has decreased 6 percent on average every year. In 2013, legal cigarette production fell to 47 bln cigarettes.
Apart from a decreased demand for legal tobacco products subject to excise, the sales of legal smoking tobacco are also steadily decreasing. In 2010-2013 this decrease had an average value of 18 percent. As a result, in 2013 the total sales of legal smoking tobacco amounted to 1089 tons. Cigars are the only legal tobacco product to show an increase in sales. In 2007-2012, the annual average increase was 10 percent, which was mostly a result of the demand for mass-produced cheap products (the so-called “party cigarettes”), a substitute for legal cigarettes due to more favorable taxation.
According to Employers of Poland, the most effective strategy for tackling the grey market would be to undertake appropriate actions addressing the root of the problem – that is excessive and rapidly increasing taxation, causing a lack of balance between the prices of legal tobacco product in relation to the purchasing power of Polish citizens. Further increase of the excise should only occur, when the legal framework for the tobacco sector is specified and the justice system works more effectively. Otherwise, we can expect a further shrinking of the legal market by as much as 10 mln by 2017 and the risk of a deepening of losses generated by excise and VAT in the budget.
Together with changes in EU legislation and further restrictions in flavored cigarette sales it will create a threat, both for budget income in the coming years and the tobacco industry as a whole. In order to neutralize this threat, systemic actions aimed at insulating the market, as well as improving the mechanisms of prosecution and punishment for crimes related to the grey market, have to be undertaken. Tobacco leaf trade should be controlled from the very beginning – starting with plantation owners – right until the stage when the final product is made and delivered for retail sale.
An example of issues that need to be addressed immediately is the imprecise regulation with regards to dealers. There is also a shortage of ideas on how to tackle services such as devices for crushing “party cigars”.
The report in full (in Polish) is available below.