Tobacco tax evasion in Western Balkan countries: tax evasion prevalence and evasion determinants

Abstract

Background and objectiveTobacco tax evasion undermines the goal of tobacco taxes as a tobacco control measure to make tobacco products less affordable, increases the health risks for those who smoke and decreases the government revenue. This paper analyses the tobacco tax evasion in six Western Balkan (WB) countries: Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia. The aim of this research is to estimate the size of the illicit market and identify the main determinants of tax evasion activities in the Southeastern European region.Data and methodsData from 2019 Survey on Tobacco Consumption in Southeastern Europe (STC-SEE) are used. STC-SEE provides uniquely comparable nationally representative data on smoking behaviour for adult (18–85 years old) population for each country. Tax evasion is defined on the basis of available information on tax stamps, health warnings, price and the place of purchase, in accordance with the previous research on tax evasion. In order to estimate the determinants of illicit purchases we use binary choice model of tax evasion.ResultsThe study finds that 20.4% of all current smokers in WB countries evade taxes on tobacco products, with evasion being much more frequent for hand-rolled (HR) tobacco (86.7%) than for the manufactured cigarettes (MC) (8.6%). While HR is predominantly illicit in all six countries, MC evasion varies significantly, with evasion being significantly higher in Montenegro and Bosnia and Herzegovina. Results further suggest that tax evasion is higher in the statistical regions where institutional capacities to tackle illicit trade are lower, in municipalities bordering countries with high MC evasion, as well as among smokers with low income, women and elderly. We also provide evidence that higher tobacco taxes and prices do not increase illicit consumption.ConclusionThe findings from the research suggest that in order to decrease tax evasion, governments should put additional effort to strengthen institutional capacities to tackle illicit tobacco markets. Furthermore, improving regional coordination in development and implementation of tobacco control policies, including the prevention of illicit market, is essential in lowering evasion in all WB countries. Finally, WB countries should regulate and enforce excise tax stamp requirements on the HR tobacco market to a much higher degree.

Illicit trade in tobacco products: recent trends and coming challenges

“…Table 1 presents prices of legal and illegal cigarettes from studies, identified by Goodchild et al , from 2014 to 2020, as well as the most recent studies that we identified 3 32 49. The table shows that, even when the prices are adjusted for purchasing power parity, the variation in illicit cigarette prices is large across the various countries, and the illicit cigarette prices generally follow the prices of legal cigarettes (correlation coefficient: 0.87) 51.…”

“…In the last decade, comprehensive studies of the scope and nature of the illicit cigarette trade have increased. Since 2010, studies independent of the TI have been conducted in at least 40 countries 3 32. Several methods, with their own advantages and limitations,33 have been used to analyse the entirety of the illicit trade problem, from a perspective independent of the TI.…”

Achieving policy impact on tobacco economics research: experiences and lessons learnt

“…The papers included in this supplement span the regions of Asia, Latin America, and Southeastern Europe. The research focuses on consumer responses to cigarette price increases (Divino et al, 14 Nguyen et al, 15 Vladisavljevic et al 16 ) as well as their distributional impacts (Cruces et al, 17 Gligorić et al, 18 Divino et al, 19 Cizmovic et al, 20 Nguyen et al 15 ). Two papers analyse tax leakages along the tobacco supply chain: Vladisavljevic et al 16 use data from a primary survey in the Southeastern European region to analyse determinants of tobacco tax evasion and Drope et al examine the regional implications of the tobacco value chain in Paraguay.…”

Investigation of the technological profile of illegally distributed tobacco derivatives and smoking products

“…The Balkan route is a historical contraband corridor, and the illicit tobacco trade has flourished in the period of transition and conflicts at the end of the 20 th century [8]. A survey on the determinants of illegal tobacco consumption in the Western Balkans region concludes that the consumers of hand-made cigarettes are more willing to smoke illegal tobacco than those used to buy legally manufactured and sold cigarettes [9]. On the other hand, the analysis of consumer attitudes in the same region revealed good public awareness about the negative aspects of the grey tobacco market.…”

“…The multidimensional negative effects and the factors influencing the unregulated trade in tobacco, as one of the greatest contemporary global challenges, are the subject of serious research interest [4,[8][9][10][13][14][15][16][17][18][19].…”