Fake cigarettes causing havoc

The National Business

Question: Please give an overview on the amount of illicit cigarettes in the PNG market.

A study by FTI Consulting was carried out in 2018 at the request of the Government to quantify the extent of illicit cigarettes in the PNG market.
The outcome of this study was the report “Illicit Tobacco in Papua New Guinea” which estimated that approximately one third of the total cigarettes sold in 2018 were illicit.
It projected that this figure would continue to grow and have a significant impact on the economy unless serious action was taken to counter the illicit cigarette trade.
We feel that this is a pressing issue for BATPNG as a legitimate and reputable operator in the tobacco industry, and for the Government in terms of forgone revenue to fund development aspirations.
The illicit cigarette trade needs to be stopped now before it gets to a point of no return.
This point being where it will be too widespread to control.
There are multiple examples of where this has happened in other countries who did not act quickly.

There is uncertainty on what makes a cigarette fake or illegal. How can customers tell the difference between fake or illegal products and legitimate tobacco products?It can be very difficult to distinguish at a first glance between genuine and fake or counterfeit cigarettes.
BATPNG works closely with the trade to educate vendors on what makes a product genuine so we encourage consumers to purchase only from these trusted vendors who have been selling cigarettes for a long time and whom they know to be traders of genuine PNG-made cigarettes.
Some broad indicators of illicit cigarettes are that they are cheaply priced due to tax avoidance, they may taste different, there is low quality packaging and there are no government health warnings on them or the warnings are wrongly worded.
If consumers purchase BATPNG products from trusted vendors, they can be more confident that they will only receive genuine product and not fake or illegal products.
Brands that BATPNG manufacture in Madang are Cambridge, Rothmans, Spear, Pall Mall, Winfield and Bunara and the company is not responsible for any other brands sold in PNG.Can you tell us how much are illicit traders earning from sales and how much the state is losing in tax per year on the sale of this illicit product?
The FTI report does provide insight in this area by noting that the Government will have forgone K2.4 billion in direct and indirect taxes by 2023 and this is projected to double to K4.8 billion in 2028 if no serious action is taken to address the growing illicit trade.

What are your suggestions to stop the trade of illicit cigarettes? Do you think licensing tobacco producers and resellers like what is in place for alcohol will help?
The Government has been working to address illicit trade issues and we believe it should continue to be a priority reform agenda item with the following solutions:

  •  AN independent taskforce should be established to focus Government efforts on improved detection and enforcement of illicit tobacco and other illicit goods. There is work being done in this area by the Government and we look forward to seeing the outcomes soon;
  •  DETECTION and enforcement should primarily focus on key entry points for illicit tobacco especially major seaports. The Government should invest in additional scanning and detection at the port of Lae and other major seaports around the country;
  •  IMPORTERS and manufacturers of tobacco products should be licensed; and,
  •  INCREASED funding for the ongoing commitment of law enforcement and customs agencies to recover lost Government revenue from the illicit sector.

I understand that Rothmans was introduced to address the growing illicit cigarette trade in PNG in 2019 targeting the lower market segment. How has that worked out so far?
Rothmans was introduced to offer consumers an affordable alternative to cheaper illicit cigarettes.
Results have been positive in impacting the illicit trade; however, it is still very difficult to compete with untaxed cigarettes that can sell at much lower prices.
This is where we call on the Government to increase enforcement to stop the importation of illicit tobacco and ensure all operators are paying the correct amount of taxes to the Government.

The 2021 National Budget is coming up. Will BATPNG be able to pay the projected amount of excise from the 2020 and what do you expect from the 2021 budget in terms of taxes?
This year has been challenging for many companies including BATPNG.
Most of our customers are small to medium enterprises and they have been impacted negatively as well.
We have communicated our position to the Government about what this will mean for our projected revenue this year and in 2021. Our position remains that there should be a sustainable excise approach in the 2021 budget. This will allow the return of excise revenue for growth and importantly, not to further fuel the growth of the illicit tobacco trade.
Any growth in the illicit trade will mean less excise revenue for the government.
BATPNG recommends that a sustainable approach is taken to excise increases so all sectors can recover from the Covid-19 economic impact and continue operating and contributing to the PNG economy at levels seen in 2019 and previous years.
This has happened across several of our neighbouring countries where some governments have held excise rates at the same level as the previous year as part of their stimulus responses.

How has BATPNG coped with the impact of Covid-19?
Covid-19 and the resulting lockdowns have had some impact on BATPNG operations, especially in our distribution to some parts of the country.
However, our employees numbering more than 240 nationwide are resilient and are at the centre of how we as a business have managed to adjust to new measures introduced because of Covid-19.
BATPNG management followed all Government measures to ensure the safety of all staff while maintaining operations.
This meant adjusting our business continuity plans, having staff work from home on a rostered arrangement, and being vigilant in following the Covid-19 measures.
In addition, as general manager of BATPNG, I am especially proud to say that we have not laid off a single full-time employee during this difficult time.
We have also assisted the Government in June this year with more than K100,000 worth of PPEs which were delivered to the PNG Defence Force base under supervision of the Health Department for distribution nationwide.