Contraband cigarettes could be costing Malta €19 million in lost tax

The trade of counterfeit cigarettes passing through Malta is an area of concern, a KPMG study into the contraband trade has found: latest estimates for 2016 suggest that 17.2% of the total consumption of tobacco here was counterfeit, making it one of the highest in the EU.

According to KPMG’s annual study into the scale and development of the illicit cigarette market in the EU, Malta has experienced a drastic increase in contraband and counterfeit (C&C) cigarette consumption.

Contraband cigarettes are genuine tobacco products that get illegally diverted into a different market, while counterfeit cigarettes are tobacco products manufactured without the permission of the trademark rights holder.

KPMG tags the cost of lost taxation that could have been paid on such cigarettes, had they been legal, at €19 million.

‘Illicit Whites’ – cigarettes manufactured for the sole purpose of being smuggled and sold illegally elsewhere – were the main source of C&C volumes, representing 22% of these cigarettes in 2014 but then increasing to 69% in 2016.

The report suggests this reflects an increase in cigarette consumption on the Maltese islands in 2016, as well as reflecting its role as a transit country.

The KPMG report also surmises that as a main point of entry used by smugglers towards the EU, this may explain the increase in illicit whites brands flows to Malta. Specifically, it points out that Illicit Whites brands like ‘Business Royal’ and ‘American Legend’, which have no country-specific labelling, passed through Malta before being exported to other countries.

These outflows were mainly to the more expensive Western European markets of UK and France, whose average prices for a packet of 20 cigarettes were €8.86 and €6.76 respectively. Malta’s average price for a packet of cigarettes is €5.25.

“If the contraband and counterfeit cigarettes had been consumed legally, an additional tax revenue of approximately €19 million would have been raised in Malta,” KPMG said.

The Maltese customs department says the brands Business Royals, American Legend, Manchester and Tradition cannot be sold in Malta and are imported illegally.

Customs authorities have announced they will be taking new measures aimed at dissuading the consumption of counterfeit tobacco, targeting businesses, hawkers and street-vendors, social clubs such as political, band, and sporting associations, boat owners and maritime workers, as well as private individuals.  

“Selling counterfeit cigarettes is a serious criminal act that carries harsh penalties and confiscation of carrying vehicles and even prison. Nobody can buy these products, and nobody can offer them for sale. The consumption of one single counterfeit or contraband cigarette carries with it a minimum €250 fine.

“Every euro in excise lost on contraband cigarettes is a euro stolen from government coffers that would otherwise be spent on health, education, pensions and childcare. It is in the interest of honest taxpayers to assist Customs by calling 2568-5124 on our 24 hour hotline or 24568-5200 during normal workdays.”