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Greece Could Raise A Billion Euro A Year If It Eliminates the Illicit Cigarette Trade

March 7th, 2015

But that’s the proverbial big ‘if’. According to various reports the freshly elected government of Greece led by the left-wing Syriza party has agreed terms with the Eurogroup on Tuesday morning on a four-month extension of the country’s €240 billion bailout programme. As part of the negotiating process, the Greeks submitted a document giving a number of assurances to Eurozone members summarised by the apparent pledge that the new government’s tackling of Greece’s ‘humanitarian crisis’ would have ‘no negative fiscal effects’.  The document reportedly outlines a plan to increase state funding by strengthening the country’s currently very weak tax enforcement and combating corruption including (but by no means exclusively) by cracking down on the illicit trade in tobacco – so what is the scale of Greece’s illicit tobacco trade and crucially how much could potentially be raised by eliminating it?

Greece a destination and transit point for illicit cigarettes 

The share of illicit cigarettes in Greece has grown steadily from 2008 when it stood at just under 5% to reach 18% in 2013 for a total volume of four billion sticks. This growth has been fuelled by excise and industry-driven price increases and is fed by the expanding availability of illicit white cigarettes from the United Arab Emirates and eastern Europe for which Greece acts as a transit point to the wider European region. Greece consumed about three billion cheap white cigarettes in 2013 and according to KPMG’s Project Sun, the main illicit white brands seen in the Greek market in 2013 were Cypriot company Explosal’s Raquel, and Gold Mount, produced in the Jebel Ali Free Zone.

Preliminary Euromonitor estimates indicate that illicit penetration reached 21% of all cigarettes consumed in Greece in 2014 amounting to over 229 million non-duty paid packs smoked. Based on an average pack price of €3.80 in 2014 and an average tax burden per pack of 85% of TIRSP (inclusive of specific excise at €82.50 per 1,000 sticks and rates of ad valorem and VAT of 20% and 18.7% respectively) the Greek state lost about €740 million in tax on this illicit consumption. Although increases in illicit trade are expected to moderate over the forecast period, further excise hikes and the continuing use of Greece as a transit hub means penetration is likely to reach and exceed 25%  by 2019. With only moderate taxation and pack price growth in the intervening period, the value in tax revenue foregone of the Greek illicit trade in cigarettes will surpass €1 billion by this time.

An uphill battle to combat illegal consumption 

Notwithstanding the fact that realising the entirety of this additional income would represent only a fraction of the total shortfall in the Greek exchequer position, it is not clear how the authorities will go about reducing illicit consumption even by marginal amounts. Combatting Greece’s role as a clearing house for illicit products to the rest of Europe would help, as inevitably a portion of these products find their way into the domestic market. The government and industry must also move to dampen domestic demand for illicit products through moderate tax increases and educating Greek consumers about the nature of the illegal cigarette trade. In 2014, the Greek tobacco industry, with the support of official agencies, launched a campaign with the slogan “Say No to Illicit Tobacco Products” – something that represents a start but one feels it will take more than slogans to rechannel this revenue to the public good.

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