British American Tobacco Regulatory News (BATS)

26 Apr 2007 12:03

British American Tobacco PLC26 April 2007 The criminals costing taxpayers billions - not modern 'Robin Hoods' Smuggled or counterfeit cigarettes sold in pubs, clubs and on the street arecosting taxpayers billions of pounds, British American Tobacco said today. The illicit tobacco trade has lost the UK Government over £19 billion in taxrevenue over five years to 2005 - enough to build 800 new secondary schools,said Chairman Jan du Plessis at the company's Annual General Meeting. And this is just the tip of the iceberg. Globally, the black market isestimated to have cost governments worldwide £12 billion in lost taxes last yearalone. Mr du Plessis said some 320 billion cigarettes smoked worldwide last year wereillicit - over six per cent of world volumes and more than the combined volumesof Imperial Tobacco and Altadis - and the criminals behind this trade are nowthe world's fourth biggest tobacco player. He said British American Tobacco's losses to the criminals' pockets are nowestimated at over £500 million a year, while legitimate tobacco companies as awhole lose over £2 billion. Mr du Plessis said excessive tobacco tax increases give a lucrative opportunityto the traffickers: "The issue is not taxes in themselves. It is very largetax increases, sometimes suddenly imposed, that push prices higher thanconsumers are prepared to pay and create big tax differences, and thus big pricedifferences, across borders." He revealed that a so-called 'amateur' smuggler of 15,000 cigarettes in twosuitcases, bought tax-paid for £1.60 a pack in Spain, can net an illegal profitof over £1,000 at UK street value. A transit van-load smuggled from Ukraine cannet a £50,000 illegal profit and a large truck-load can net £1 million. Mr du Plessis warned: "Consumers should not imagine that the shadowy figuresbehind this trade are heroic 'Robin Hoods'. Anyone lighting up a smuggled orcounterfeit cigarette should know they may unwittingly be helping to fundinternational organised crime, while taxpayers foot the bill." Interpol, the international police organisation, notes that gangs behind illegaldrugs, arms and people trafficking are also involved in the illicit cigaretteand alcohol trade. Mr du Plessis told shareholders that British American Tobacco's battle againstillicit trade includes ensuring that quantities it supplies are consistent withlegitimate demand, cutting off supplies to any customers knowingly or recklesslyinvolved in illicit trade, putting a covert security feature on its packs tohelp enforcement agencies to spot fakes, signing agreements with customsagencies for joint action and helping governments with intelligence-gathering. "But fundamental to this battle is the recognition that there is a limit to whatmanufacturers can do on their own," he said. "It is critical for governments torecognise that ever-rising tobacco taxes will drive growth of the illegalsegment. An urge to raise revenues or reduce consumption through higher taxescan all too often be an 'own goal', with lost revenues and taxes higher thanconsumers will pay, driving them to illegal cigarettes." He welcomed the World Health Organisation's move to develop a global treaty tocombat illicit tobacco trade and said British American Tobacco had much to offerto help make it effective. "For example, we propose that every manufacturer should ensure its sales areequivalent to legitimate demand, should screen and monitor customers and act toensure that its customers implement similar trading policies. We support packmarking, showing the place and date of manufacture, security devices andgovernment tax markers on packs. We advocate stronger laws, tougher penalties,destruction of seized goods and illicit machinery, and laws to make the copyingof tax markers as serious a crime as forging banknotes." Mr du Plessis added: "We hope, and believe, that some members of the tobaccocontrol community recognise that in this battle, the legitimate industry is anally, not an enemy. The real enemy is the burgeoning body of illicittraffickers which, if regulation takes a perverse course, could become biggerand more successful yet." ENQUIRIES British American Tobacco Press Office David Betteridge / Kate Matrunola / Catherine Armstrong +44 (0) 20 7845 2888 (24 hours) Notes to editors • The full text of the AGM speech can be found at www.bat.com / Media. • There is more information at www.bat.com / Consumers and trade / About illicit trade. • Examples of the effect of tobacco tax increases include: UK: The tax on cigarettes rose by 173 per cent in the sixyears to 2000, and consumption of cigarettes on which no UK taxes were paid rosefrom four per cent to an estimated 27 per cent today. Germany: 70 per cent excise increases over four years saw a 70 percent rise in consumption of cigarettes on which German taxes were not paid,losing the Government almost £3 billion last year alone - a sum forecast to riseby a further £1 billion this year. Hungary: Tax increases of 94 per cent in 18 months saw illicittrade soar to over a fifth of the market, losing the Government, over a two yearperiod, a sum equivalent to its entire annual healthcare budget. Canada: A survey just over a year ago found that 17% of tobaccoconsumption was contraband, mainly product manufactured in, and smuggled from,First Nations reservations and all the indicators show things have grown worsesince then. "Politicians in Canada," said Mr du Plessis, "a leading country intobacco control, find it politically convenient to ignore this scourge, despitethe disastrous social and economic impacts." This information is provided by RNS The company news service from the London Stock Exchange