Research by KPMG has shown that the UK Government would have made an extra £1.84bn in tax if the number of counterfeit and illicit cigarettes smoked in the UK were sold legally.
The study carried out by KPMG for the Royal United Services Institue for Defence and Security Studies ((RUSI), says that the UK has one of the highest figures for illicit tobacco in Europe, with 5.5bn being sold in 2016 alone. This is despite tighter controls and law enforcement bringing about a 17% drop in the number of counterfeit cigarettes in circulation.
The tobacco companies lose out on revenue too, of course, but across Europe, it is estimated that €10.2bn tax revenue is lost.
It is also estimated that, across the EU, Norway and Switzerland, over 48bn illicit cigarettes are consumed annually. This is equivalent to 9% of all cigarettes smoked on the continent, and more than the total of legally purchased cigarettes in France.
The study says that the scale of the counterfeit industry represented a “major organised crime on an industrial level.”
“Across Europe, law enforcement has typically focused on more visible criminal activity – particularly drug trafficking – which is perceived to pose a more immediate threat,” Cathy Haenlein, research fellow for serious and organised crime at RUSI, said.
“Meanwhile, the profits to be made can be just as significant as those attached to higher-risk crime. With low production costs, illicit cigarettes are lightweight and easy to transport, yet retain a high sale value and consistent consumer demand.”
She also noted that the groups behind the trade were often very loose, transient networks, making it more difficult for the authorities to identify them.
“In order to minimise loss in the event of detection, the groups involved increasingly adopt a ‘little and often’ approach to C&C smuggling,” she said.
“This involves splitting illicit cigarettes into numerous, smaller consignments, which are sent along an array of routes and channels. Though potentially increasing the costs incurred, such consignments rarely reach authorities’ thresholds for inspection. This allows goods to fly under the radar of law enforcement, reducing potential losses and enhancing the profits to be made.”
RUSI received funding for the study from British American Tobacco, Imperial Brands and Philip Morris International.