The illicit trade in cigarettes is growing much faster than originally thought with internal studies by Carreras, Jamaica’s sole licenced distributors of cigarettes, showing that almost one-third of all cigarettes sold in Jamaica are illicit.

Carreras is admitting that “the incidence of the illicit trade in cigarettes remains a major concern …the illicit trade in cigarettes forms a part of the informal segment of the Jamaican economy, which is estimated to be between 40% – 60 per cent of the formal economy.”

Speaking in an interview with The Caribbean Business Report on Wednesday at the company’s annual general meeting in Kingston, Managing Director Marcus Steele was adamant that the government’s taxation policy on cigarettes is fuelling the illicit trade.

He reported that the total loss from the illicit trade is over $5 billion annually with the direct loss to the government in terms of taxes estimated at $2.5 billion annually.

“This is a monster that we need to tame and we have to do it together with the authorities,” Steel declared. According to the Carreras managing director, his company has already established a direct relationship between an increase in the excise duty on cigarettes and an increase in the illicit trade.

Gov’t loses over $1.8 billion in taxes due to illicit trade in 2017

Steel pointed to “two years ago when we had a $3 increase in the excise on cigarettes from $14 to $17; we saw where the illicit trade went up significantly and the Government lost over $1.8 billion. It also impacted the company as well, because the legal market went down by over 22 per cent.”

He sounded a message to the government and the authorities from the industry that there is this direct relationship, urging the administration to very careful with any taxation policy that will require a further increase in the excise duty on cigarettes.

“We are already at 58 per cent of invoice price that is taxed; 47 per cent of the price to consumer is taxed, so it is a significant part of the cost chain…if we continue to get it wrong the Government will continue to lose significant amount of money and the illicit trade will continue to win,” Steel warned.

He emphasised that “a natural consequence of frequent and excessive increases in tobacco excise is increased interest in the illicit trade by consumers seeking cheaper alternatives”.

He mentioned that last year the company continued to work with authorities to educate customers and consumers about the illegality and risks of consuming unregulated, illegal or smuggled products.

Carreras also last year successfully staged an anti-illicit trade conference sensitising key stakeholders in the fight against the illicit trade on the size and scale of the issue, presented a global perspective and best practice solutions from a widely recognised expert on international illicit trade and highlighted the need to further refine the private-public collaborative framework, which is a critical component of any strategy to reduce the incidence of illegal cigarettes.

Historic illegal cigarette seizures

Steel noted that “the commitment of the authorities in stemming the proliferation of illegal cigarettes was reinforced with the observed collaboration between the police and the Jamaica Customs Agency, as well as the respective vigorous effects of each agency that led to the historic illegal cigarettes seizures during the year.”

For his part Carreras chairman Oliver Holmes observed “the historic levels of illegal cigarette seizures, which both the police and Jamaica Customs are to be commended, for which no doubt demonstrates their resolve in reducing the presence of illicit cigarettes within the domestic market.”

He said Carreras will continue to make recommendations to the Government on solutions, including the implementation of a sustainable excise strategy and stronger border and port control protection mechanisms among others.

The Carreras chairman pointed out that during last year the company continued to place significant focus on sustaining the awareness of the illicit trade and its impact among key stakeholders including the Government, law enforcement and customers through various media and communication initiatives.