JTI considers this decrease “remarkable,” compared with January 2010, when contraband made up 36.2% of the cigarette market, in the wake of a large hike in excise duties. Later, the illicit cigarette trade began to decline, with the exception of July and November 2011, owing to changes to legislation and a government workgroup that yielded a strategy against cigarette smuggling.
Thanks to the efforts of Moldovan authorities, cigarette smuggling from that country has decreased, but the inflow of contraband tobacco products from Serbia is on the rise, said Gilda Lazar, Director Corporate Affairs & Communications at JTI Romania. She argues that to reduce the black market further, Romanian authorities need to continue improvements to anti-smuggling legislation and follow the excise hike calendar as set down in the Tax Code.
Lazar points out that the government’s efforts must not be hampered by alternative schemes, like raising the so-called vice tax, which was provided by a previous healthcare bill.
Adrian Popa, Director Corporate & Regulatory Affairs at cigarette producer BAT Romania, says reducing contraband will lead to an increase in budget revenue. According to the National Customs Authority, in January 2012, revenue from cigarette excise duties was 42% higher than in the same month of 2011.
“A single percentage point recovered by the legal market from smuggling means additional state budget income of around EUR30 million and, were the illegal cigarette trade cut down to zero, the budget would see an extra EUR400 million,” Popa explains.
Andrei Vasilescu, Director Corporate Affairs at Philip Morris Romania, the third-largest local producer, says the legal framework on smuggling and tax evasion needs to be improved. Using a quantitative approach in determining the seriousness of an act of tax evasion or contraband, both on national territory and in customs points, would simplify legal procedures, he argues.
Currently, the illegal possession, transport or sale of at least 10,000 cigarettes on national territory is a crime, while in customs, trafficking cigarettes with a value over 20,000 lei (EUR4560) is a criminal offense, Vasilescu says.
The tobacco industry is a major contributor to Romania’s state budget. In 2011, the three local producers poured around EUR2.75 billion in excise duties and VAT into the consolidated budget (EUR1=RON4.3557).