Philip Morris Warns of Unintended Consequences of Regulation in Aiding Illicit Trade

Philip Morris Warns of Unintended Consequences of Regulation in Aiding Illicit Trade
Philip Morris Warns of Unintended Consequences of Regulation in Aiding Illicit Trade

Illicit trade is one of the biggest threats to the stability and economic growth in South Africa, illustrated today as Business Unity South Africa (BUSA) presented the Transnational Alliance to Combat Illicit Trade (TRACIT) Organized Crime, Corruption, and Illicit Trade: Spotlight on South Africa report.

The TRACIT report, Organised Crime, Corruption and Illicit Trade: Spotlight on South Africa was presented to business and industry leaders with the aim of providing an update on South Africa and to refresh the set of legal, regulatory and policy recommendations designed to strengthen the countries fight against illicit trade.

 

According to Philip Morris South Africa, while illicit trade is not a problem unique to South Africa the report demonstrates that criminal networks have gained a foothold in the market and the impact will take years to reverse.

“Illicit trade harms everyone except criminals,” they added. “Harm to consumers in terms of products, harm to society overall as illicit tobacco is used to fund other much more serious criminal activity like human trafficking and terrorism.”

“If South Africa’s illicit trade is managed and dealt with in a swift, appropriate and necessary actions it will mean that our increased monitoring from the Financial Action Task Force (FATF) will be seen in a more favourable light and could eventually see South Africa move off they grey list,” they said.

“The problem of illicit trade has been compounded in recent years owing to severely restrictive regulations,” they explained. “While South Africa’s leadership have taken steps to tackle illicit trade which was exacerbated by the ban on the sale of tobacco products during the lockdown, there still isn’t a strategic framework with clear leadership or enforcement.”

If anything, this report has demonstrated, that more partnership, engagement, and an effective policy response needs to take place.

“Policymakers must ensure new regulatory measures do not create unintended consequences or incentivise consumers to choose illicit alternatives to available, legitimate products,” they added. “Excessive cigarette tax increases or tobacco bans create a free for all for illicit and criminal organisations.”

“The practice of excessive cigarette tax increases defeats the goal of harm reduction. Adult smokers who don’t quit will seek cheap illicit cigarettes rather than switching to less harmful products such as scientifically substantiated e-cigarettes or heated tobacco products,” they said. “While fighting the crime of illicit cigarettes, the focus should also be on how much faster we can increase access to and accurate information on less harmful products for adult smokers who do not quit.”

Furthermore, a risk proportionate tax approach should be adopted. “With this approach, scientifically substantiated smoke free products should be taxed at significantly lower rates than the most harmful products like cigarettes, to ensure that there are better options for adult smokers who continue to smoke cigarettes.”

“It is important to tighten up cooperation between enforcement authorities, which will enable identifying equipment, packaging and raw material suppliers to cut off illicit trade at the source,” they added. “The report highlights valuable lessons, showing that crisis-driven regulations, however well-meaning, can have unintended and long-lasting negative impacts on driving illicit trade, the economy and society.”