Tobacco health concern, options for government to have better control

The National Business

TOBACCO is a health concern for all its consumers and the government needs to do more to ensure this industry is better regulated.
Improved regulation will also mean reducing the amount of money the government loses through the increase of illegal cigarette sales.
This article looks at the revenue issue of tobacco and options for the Government to have better controls.
ABOUT K550 million in Government revenue was lost last year due to illegal cigarettes sales according to a report launched last year by Prime Minister James Marape.
The Illicit Tobacco in PNG Study by leading researcher FTI Consulting Group noted this was a result of cigarettes not being taxed properly.
“The Government levies direct taxes on tobacco products such as excise taxes, customs duties and a 10 per cent value added tax,” the report stated.
“However, there are also broader economy-wide (indirect or flow on) losses across all tax categories including tariffs, excise duties, export tax, income tax, production tax and company tax.
“Based on our estimated proportion of illicit cigarettes in the PNG tobacco market, we project that the PNG Government stands to lose K136 million in 2019 through direct tax losses associated with illicit cigarettes and that this will grow to around K608 million by 2023, and K839 million by 2028.
“Our model estimates that the indirect losses to the PNG Government account for a further K413 million in 2019 and these are expected to increase significantly to around K1.84 billion by 2023, and K3.97 billion by 2028.
“Adding the direct and indirect impacts together means that the Government faces total revenue losses from illicit cigarettes of around K550 million in 2019.
“This then increases significantly to K2.45 billion by 2023 and is expected to total K4.8 billion by 2028.”
The economic impact from illegal cigarettes is wide ranging causing a decline in employment and also results in a decline in household income, which in turn reduces national welfare.
The report recommended several actions to counter this increase with the most prominent of these being an independent trade task force to detect illegal goods entering the country.
The taskforce would be a combination of key enforcement agencies such as the Customs, Police, PNG Defence Force and Border Control staff as well as PNG Ports and other support agencies.
Their primary role would be increased detection of illicit products resulting in:

  • Increased revenue collection (from excise taxes and import duties) particularly where tobacco products otherwise meet the packaging and health warning legislative requirements;
  • Increased seizure and destruction of tobacco products that do not meet the legislative requirements; and,
  • Prosecution of offending companies and individuals.

Other recommendations to the government include:

  • Focusing detection on key entry points for illicit tobacco into PNG. These are primarily major seaports, road border cross points with Indonesia and larger air and mail cargo;
  • Government should enhance its detection and enforcement efforts by enacting existing provisions under the Tobacco Control Act declaring enforcement officers; and,
  • Importers of tobacco products should be licensed or require a permit. The Government should make regulations to require permits for all tobacco imports.

The report importantly suggests that current laws be reviewed and changed so penalties are more severe against offenders in the tobacco industry.

  • Enhancing existing legislation to reflect international best practice. Criminal prosecution with significant jail sentences;
  • Financial wrongdoing penalties up to the value of the excise and import duties due (i.e. doubling the cost of duties for a false declaration);
  • Prohibition of the importation or sale of tobacco products for a defined period;
  • Withdrawal of any applicable importation, manufacturing or retailing licenses.