Illicit trade harming legitimate businesses

The rise in the influx of cheap illicit tobacco is affecting the volume of legitimate tobacco products being sold, posing a threat to government revenue such tobacco excise, GST, Pay As You Earn and company taxes.

British American Tobacco PNG Ltd (BATPNG) says it is experiencing continued threat from illegal operators that impedes on the commercial viability of its PNG operations.

The company said this following the recent seizures of illegal products by Government authorities.

BAT said the Government is expected to lose millions due to illicit trade as many legitimate businesses are under serious threat.

The company says illicit players leverage weak border controls and lack of enforcement capability to conduct their activities.

A study conducted by FTI Consulting in 2018 reported illicit cigarettes to account for 32 percent of all cigarette sales in 2018, resulting in over K136 million in direct excise losses for the country.

The report was presented to Prime Minister James Marape in October 2019.

BAT says since PNG Government’s 10 percent excise increase on tobacco products on 1 December 2019, the market has seen a greater influx of illicit tobacco while the volume of legitimate tobacco products has experienced significant decline.

If this trend continues, it will continue to impact the total revenue collected by the Government, which includes tobacco excise, GST, PAYE and company taxes.

The company says legitimate business need a level playing field as many products in the marketplace are sold below the minimum tax threshold.

“This in itself signals something is not right and the Government must urgently consider robust and consolidated action to enforce the laws of PNG.”

Whilst the Tobacco Control Act 2016 was passed some time ago, enforcement and compliance remain a major issue. BAT says urgent regulations to facilitate action and enforcement of the Tobacco Control Act, to help stop non-compliance and illicit trade.

BAT is recommending that:

  • The Government set up a well-resourced Taskforce to investigate and prosecute all wrong doers who deny this country its fair share of revenue.
  • The PNG Customs Service should also start investigating any tobacco companies who claim to be manufacturing locally but are yet to open their books to audits by the Government. There has to be a mandatory obligation for companies to be audited by PNG Customs Services to help in ensuring there is a level playing field.
  • Manufacturing and import licences under new tobacco regulations should be introduced with strict qualifying criteria and compliance requirements. The introduction of much stricter deterrents and penalties will also strengthen the fight against illicit traders. And the PNG Government must empower and enhance the capability of all enforcement agencies to strengthen PNG’s border controls, stop revenue leakages and address non- compliance with PNG’s laws.

BAT PNG says it supports urgent intervention by the PNG Government to stop the illicit trade.

Press release