Russia loses billions to illegal tobacco trade

Recently, the Russian State Center for Combating Illicit Traffic in Industrial Products (ANONNCK) released new data revealing that illegal tobacco smuggling has cost the Russian government 61.1 billion rubles (roughly 5.657 billion yuan) in the first nine months of 2022. From 2016 to 2021, Russia's federal government has lost approximately 300 billion rubles (roughly 27.78 billion yuan) in tax revenue.

According to data from the NNCC, it is projected that 12% of illegal cigarettes will enter the consumer market in the second half of 2022. In certain brick-and-mortar stores, the proportion of counterfeit products can be as high as 30% or even higher. Research at the end of 2022 shows that the proportion of illegal nicotine products is 79%, while illegal e-cigarette oil accounts for as much as 93%. After experiencing a significant drop from 15.6% in 2019-2021, the proportion of illegal cigarettes has remained steady at approximately 12-13%.

In the nine months of 2022, the number of surprise inspections conducted on the tobacco retail market decreased by threefold compared to the same period last year. Only 60 physical stores were not inspected on the retail end during the third quarter of 2022, while 79 purchasing lines of retail entities were not inspected on the wholesale end. Similar situations were observed in enforcement practices, where administrative criminal cases filed in the nine months of 2022 decreased by 2.5 times compared to 2021.

The National Commission for Combating the Illegal Trafficking of Industrial Products has established a special working group aimed at reducing the illegal market for tobacco and nicotine products. Their responsibilities include strengthening control over the cross-border flow of these products, specifying the responsibilities of transport companies, and enhancing market responsibility to promote long-distance trade. The working group’s inaugural meeting is scheduled for February 21, 2023.

Despite the extensive work carried out by the Ministry of Finance, the unified consumption tax rates among member states of the Eurasian Economic Union (EEU) have not yet been coordinated. This has resulted in persistent differences in consumption tax rates among these countries, as well as uncontrolled flow of goods between them, which in turn has led to the supply of cheap illegal cigarettes within Russia's borders. With this price volatility and open borders, it will be impossible to reduce the illegal trafficking currently stipulated by existing regulations.

According to data from Russia's statistical bureau, tobacco companies in Russia produced 222 billion packs of cigarettes in 2022, which represents a 7% decrease from the previous year.

References:

The Russian budget has suffered losses exceeding 60 billion rubles from illegal tobacco sales in the first nine months of 2022.