Warsaw, 5th December 2018
The grey economy of tobacco products is in decline, but still too large – further changes necessary
The grey economy of cigarettes in Poland has decreased by almost 30%, but it is still more than the average in the European Union. It is necessary to take further steps in the fight against this phenomenon – according to the latest report of the Union of Entrepreneurs and Employers “Grey market for tobacco products. Diagnosis, proposals for solutions”.
Regardless of the definition of the informal economy, there is no doubt that this is a harmful phenomenon, and those sectors are particularly vulnerable and exposed to it where the “bonus” for illegal activity is the highest. One of them is the tobacco sector. As a result of unreasonable excise tax increases and the lack of adequate legislative activity, the share of the grey economy in the consumption of cigarettes in Poland, according to the consulting firm KPMG, reached almost 17% in 2015. This would mean that almost one in five cigarettes smoked in our country came from an illegal source.
“The situation back then was dramatic,” claims Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers. “We saw the effects of further excise tax increases, and we warned that the problem would only deepen. It seems that the collapse in 2014 sobered many people up and they came to the conclusion that it was probably not the best idea to increase this tax so rapidly and drastically, since the budget didn’t profit from that, and the illegal market was expanding.”
Apart from the unreasonable tax policy, there were no specific legislative actions. Dried tobacco, for example, were taxed, but there was no wider, systemic approach to fighting the grey zone. The focus was on solving problems in an ad hoc manner that were especially evident in a given period. It was not until 2015 that a broader campaign to fight the informal economy of tobacco products was launched. A register of intermediary tobacco entities was introduced, an obligation to deposit excise security was imposed on these entities, and an obligation to keep records of dried tobacco was introduced. Then, in 2017, the “tobacco package” was implemented. It provided comprehensive tools to supervise and monitor the market for growing, producing and selling tobacco.
One didn’t have to wait long for the results – the share of the grey zone in the cigarette market in Poland amounted to 12.1% according to KPMG experts. It is almost 30% less than in 2015, but at the same time almost 30% more than the average for the European Union. This means that there is still much to do in the fight against grey economy.
“The main area to be improved are the regulations included in the penal fiscal code and detailed criminal provisions relating to the illegal circulation of excise goods,” says Katarzyna Włodarczyk-Niemyjska, Director of the Law and Legislation Department at the Union of Entrepreneurs and Employers. “Presently, the provisions are inadequate to the specificity of prohibited acts related to this trade, and sanctions are insufficiently related to the losses for the state budget. We postulate on the pages of our report to change this state of affairs.”
As it is emphasised in the document, the need for further actions aimed at fighting the informal market of tobacco products in becoming rather urgent, because at least two significant risk factors appear on the horizon: the ban on sales of menthol cigarettes entering into force in 2020, as well as the potentially too high increase in the minimum level of excise duty on tobacco products required by the tobacco directive. Both these changes, the former being certain and the latter so far only plausible, can significantly affect the growth of the grey economy of tobacco products in Poland, and this would result in measurable losses both on the side of legally operating entities and the State Treasury.