Taxes up in smoke: illicit cigarettes cost Trinidad and Tobago millions in revenue

Cigarettes come with significant health risks, regardless of where you get them from. Smoking has proven health effects with association with several non-communicable diseases, including heart failure and cancer.

However, being a lifestyle choice set exclusively for adults, consumers are responsible enough to know that they would want their cigarettes from the safest sources, made using the best possible practices and are not associated with illegal activity.

This is why responsible smokers will choose cigarettes coming from legal sources instead of illicit cigarettes.

The trade and sale of illicit cigarettes, cigarettes either smuggled into the country or without registration, affects the consumer by giving them access to cigarettes that use unregulated manufacturing practices and may use more of the already harmful chemicals and carcinogens than in cigarettes manufactured by regulated companies.

It also affects legitimate manufacturers, who may lose significant revenue as they compete with illicit brands.

While the Ministry of Trade, the TTMA and local manufacturers of cigarettes have made strides in tackling the illicit cigarette trade, illicit cigarettes continue to find its way into the hands of Trinidad and Tobago consumers.

Now, with the illicit cigarette industry growing exponentially, it is affecting government revenue by avoiding taxes that would have otherwise been paid through legitimate cigarette manufacturers.

Millions going up in smoke

In 2020, the TTMA, through the Illicit Trade Desk, estimated that the illicit trade of cigarettes cost the country $30 million.

The Illicit Trade Desk was formed in 2018 to support members who were challenged with the issue of illicit trade and smuggling of items. Along with cigarettes, the Illicit Trade Desk has been involved in cases related to alcohol, pharmaceuticals, clothing and footwear, butter, oil and cleaning agents.

While it is not an enforcement agency, it supports initiatives geared toward eradicating illicit trade through public awareness initiatives, educational sessions, training and articles to ensure the topic is at the front of all stakeholders’ minds.

The $30 million estimate was based on potential losses in VAT, corporation tax, Green Fund tax and excise duties. The Illicit Trade Desk said this amounted to a reduction of overall revenue by ten per cent.

In April this year, the managing director of the West Indian Tobacco Co (Witco), Raoul Glynn, said for his company, the number is also significant.

“We have a conservative estimate of 20 per cent (of overall revenue),” he said at a media conference following the company’s AGM on April 23.

He explained that the company does a product survey counting discarded cigarette butts in trash cans and garbage bins.

“I can’t look for import data on illicit products because they don’t keep legal records.”

He said one of the contributors to the growth of the industry is consumer demand for cheap cigarettes. Because it evades taxes and duties, people can sell illicit cigarettes cheaper.

He added that covid19 also contributed to the development of the illicit cigarette industry as they became more accessible in some areas than regulated cigarette brands.

“We found there were quite a few places that we just weren’t anymore,” he said.

“Our distribution wasn’t getting to certain places. That was creating an opportunity for illicit trading to flourish. I know we are asking the stakeholders to do their jobs but we have to do ours as well.

“If we provide the products into these nooks and crannies, we can ensure when the consumer is there, he has a legal option.

“We have some hot spots in particular areas and consumers either knowingly, unknowingly or they simply don’t care, continue to select those products because they are looking for the cheapest offer,” he added.

The Illicit Trade Desk said most illicit cigarettes are smuggled from India, China, Vietnam or Korea.

It has been discovered that there are several channels for illicit cigarettes to be transported into the country. Some of these channels exploit the gaps in official legal transport routes. These channels include container smuggling, where contraband can be hidden among legitimate goods in shipping containers using incorrect declarations to evade customs officers.

They can also be smuggled by boat. Smugglers use small unmonitored boats and barges through remote areas of Trinidad and Tobago. Passengers entering the country can also smuggle small amounts on their person or luggage.

But perhaps the most concerning channel to officials at the Illicit Trade Desk is through official free trade zones where cigarettes and other illegal items could be smuggled as customs checks might be less stringent.

In August 2020, a container with Conway cigarettes valued at $1.1 million was stolen from the Port of Port of Spain. The container was found in December in Borde Nave, Princes Town.

“Incidences such as these are deeply concerning and highlight a breakdown in the system,” officials at the Illicit Trade Desk said.

“It also showcases how easily illicit tobacco can enter or penetrate the market.”

Second-hand cigarettes suffocates healthcare

The World Health Organization (WHO) said tobacco use kills close to six million people every year, including 600,000 people killed by second-hand smoke.

Illicit cigarettes come with no health warnings, packaging or labelling requirements, making them even cheaper and more accessible, especially to younger people and low-income communities.

The affordability leads to increased use, which eventually leads from spending money on tobacco to spending money on treating its many ill-health effects.

Along with evading taxes, the illicit trade’s effect on tobacco use also puts a chokehold on the government through the public health sector, which in Trinidad and Tobago bears the full brunt of cancer treatment for its citizens.

In March this year, the Health Ministry said the public healthcare system provides free chemotherapy and radiation therapy services for patients at the Cancer Centre of Trinidad and Tobago. Radiation therapy is also provided at the Southern Medical Clinic and the Brian Lara Cancer Treatment Centre at a cost of more than $40 million a year.

From 2021 to 2023, about $245,416,000 was spent on cancer treatment drugs.

The Ministry of Health, through the tobacco control regulations, requires that registered brands of cigarettes have health messages that warn of the dangers of smoking.

Part III of the Tobacco Control Regulations of 2013 says that health messages are to be placed at the lower half of the front and back of the panels of each pack in such a way that the health message would not be damaged when the pack is opened.

Where a cigarette is intended to be sold individually, each cigarette is expected to be wrapped with the message in uppercase “Smoking is dangerous” displayed on the wrapper.

The regulations also prohibit the sale of cigarettes to underaged people. Sellers of cigarettes are also required to have displayed at all times in bold uppercase letters the statement, “The sale of tobacco products to persons under the age of eighteen years is prohibited.”

TTMA said that legal operators must stick to strict controls to obtain a licence to sell tobacco products. These controls include rigorous checks and inspections from the Tobacco Control Unit, which include checking storage conditions, labelling of goods and manufacturing conditions where applicable.

“If production at sources is not done under the correct conditions or in the right environment, this can become a major issue,” TTMA said.

Because of a lack of these quality controls, illicit cigarettes could be manufactured in poor conditions or contain even more hazardous substances.

“This makes it difficult for consumers to be certain about what they are inhaling. Such products may also contain additives for appeal such as fillers or chemicals, which can have unforeseen health consequences.”

Glynn, during the launch of the new vaping product, the Vuse, in April, said retailers that work with Witco are required to verify the ages of people buying cigarettes. If people do not verify the ages of customers and sell to minors, Witco cuts them off.

The company also said it implements a youth access prevention campaign to ensure that cigarettes do not get into the hands of minors.

A couple weeks later, at the AGM, he doubled down on the company’s commitment to ethical manufacturing of cigarettes.

“There is no way, shape or form that we will avoid taxes, we will try to be as efficient as possible, we market products that are of the highest quality and at the lowest possible cost.”

Stamping out illicit cigarettes

Illicit cigarette trafficking may also have a link to other criminal trades and is a lucrative business which can attract criminal organisations.

TTMA said criminal organisations often have networks for smuggling and distribution, which could be used for other illegal activities.

Proceeds and profits gained from illicit cigarette trafficking can also be used to finance other criminal activities such as drug trafficking, gun smuggling, or human trafficking.

This makes it all the more important to stamp out the illicit cigarette trade.

While the trade is still prevalent, police have had some success in intercepting traffickers.

In December 2023, Customs and Excise officers announced it seized 500 cases of the illicit Carnival, Red brand and Blue King cigarettes, along with 6,000 bottles of Absolut Vodka hidden among household items. The estimated value of the contraband was $9 million.

In December 2022, the Customs and Excise Division’s Marine Interdiction Unit reported seizures of illegal cigarettes and a large quantity of various types of alcohol estimated to have a street value of $3 million.

In August, a total of 73,900 illicit cigarettes were seized in an operation executed by the Multi-Agency Task Force.

The Tobacco Control Act (2009) and the amendments in 2013 make it an offence to manufacture, import, export or distribute tobacco products at wholesale without being issued a licence first.

A person who contravenes any part of the act, for which there is no penalty prescribed, commits an offence and is liable, on summary conviction, to a fine of $100,000 and imprisonment for six months. On conviction or indictment, they are liable to a fine of $200,000 and imprisonment for a year. The same penalties apply to people who are in contravention of the regulations for labelling.

A list of illicit cigarettes can be found on the Ministry of Health’s website.

Trinidad and Tobago's Multi-Agency Task Force and its issues

On April 26, Leon Haynes, an assistant superintendent, Multi-Agency Task Force, in a report said 24,594 packs of illicit cigarettes were seized from 2020 to April 2024.

The task force was established in 2018

In the report, Haynes said, “The illicit trade is transnational, meaning there is a source country and a destination country. Who are the people involved, participating or masterminding the introduction of the illicit goods into the country and how it is done is essential to create an appropriate response.”

He said the possible solution includes collaboration between the task force, the Transnational Crime Unit, Interpol, Customs, Port Police and the Coast Guard. He said sharing information to facilitate investigations is also a solution.

Haynes said there was a multitude of licensed and legitimate importers and distributors who may know about some of the illicit trade activities but are unsure of which agency to report this information to for appropriate action.

He said creating a reporting base for illicit trade would assist in solving this issue.

He also identified a storage issue, saying most of the items are seized but at present, the task force only has one 40-foot container for storage.

But he said, the Tobacco Control Act makes no provision for the disposal of seized goods. He said a strategy must be developed for the destruction of seized goods along with the Tobacco Control Unit. He also said a fit-for-purpose vehicle is also needed to transport the seized items.

Haynes said there was no seizure of the “multitude of other counterfeit items that are placed for sale.”

He said this includes alcohol and other brand-name clothing.

“...Which may to the perpetrators that the items are legitimate and helps to increase its distribution.”