Tobacco Taxation and Combating Illicit Trade of Tobacco: Lessons Learned Volkan Çetinkaya Senior Economist

Turkey’s Fight Against Tobacco CONTENTS Turkey’s Fight Against Tobacco Turkey’s Fight Against Tobacco Tobacco Taxation in Turkey Illicit Tobacco Trade Conclusion

Tobacco Industry in Turkey 80.000 tobacco growers 9,5 billion USD tax revenues 8% of all tax revenues 7th biggest market No state monopoly Tobacco Control Activities in Turkey

Burden of Tobacco Consumption More than 100.000 people die every year due to diseases related to tobacco use (a quarter of all deaths); ¼ of population smokes (about 20 million people); 20 million smokers spend 12 billion USD on tobacco products ~ four times the annual budget of the Ministry of Health Tobacco Control Activities in Turkey

Fight Against Tobacco: Story of Commitment and Leadership* As part of the Multi-Sectoral Government approach against tobacco initiative, Ministry of Health, Ministry of Interior Affairs, Ministry of Customs and Trade, Ministry of Finance, universities, and NGOs worked together

Key milestones on Tobacco Control in Turkey 1996 - First tobacco control Law 4207 on Prevention of Harms of Tobacco Products (limited effects) November 2004 - Turkey ratified WHO Framework Convention on Tobacco Control (FCTC) May 2008 - Law implemented for public workplaces July 2009 - 100% smoke-free law implemented including hospitality sectors May 2010 - Health warnings on cigarette packages (combined text and graphic warnings) October 2010 – Smoking cessation service launched including 171 Quitline and free distribution of medications October 2011 - Increase of tobacco excise taxes for tobacco products (80,5% of tax) (20 Marlboro 85 = 5.33$) July 2012 – Total ban on advertisement (including brand sharing and brand stretching) and increase pictorial health warnings to at least 65% of both sides June 2013 - Turkey is the first and the only country in the world to attain the highest implementation score for all of WHO’s FCTC and MPOWER measures.” November 2014 - Protocol to Eliminate Illicit Trade in Tobacco Products’ signed by Council of Ministers and sent Parliament for Ratification January 2015 – New National Tobacco Control Programme and Plan of Action (Plain packaging and out door smoking bans) January 2017 – Plain package implementation (banning the use of the cigarette brands on packages) Stores will no longer be able to display tobacco products as all such items will be stored in closed containers which will not be see through. Tobacco Control Actives in Turkey

Tobacco Taxation in Turkey CONTENTS Turkey’s Fight Against Tobacco Tobacco Taxation in Turkey Illicit Tobacco Trade Conclusion Tobacco Taxation in Turkey

Turkey has one of the highest tobacco taxes in ECA WHO Report on the Global Tobacco Epidemic, 2015

Turkey lowered per-capita consumption (24%) while increasing tobacco tax revenue significantly (281%) Tax Revenue (in billions TL) Per-capita consumption According to Global Adult Tobacco Surveys, percentage of population who smoke declined from 31.2% in 2008 to 27% in 2012 There is 60 percent increase in Tobacco Tax Revenue in real terms (2003 prices)

Illicit Tobacco Trade CONTENTS Turkey’s Fight Against Tobacco Tobacco Taxation in Turkey Illicit Tobacco Trade Conclusion Illicit Tobacco Trade

Fight against Illicit Trade Illicit tobacco trade is a multidimensional and multiplayer process negatively impacts the country in economic and social terms varies greatly in terms of the commercial products the methods used Therefore, periodic increases and decreases may be observed Smuggling crimes are committed either directly through border violations, or by irregularities or forgery during customs transactions.

Causes of Illicit Trade Lax Law Enforcement and Insufficient Penalties Weaknesses in the Transit System Informal Distribution Networks Cross-Border Price Differentials Duty-Free Sales Lack of Resources Lack of Effective International Cooperation

Illicit Tobacco Trade in Turkey Smuggled cigarettes, especially smuggled through Turkey’s Eastern and Southeastern borders, and distributed within Turkey in trailer trucks with a fake seal and hidden in or under all kinds of goods. Ministry of Health, Ministry of Interior Affairs, Ministry of Customs, and Ministry of Finance worked together to combat the illicit tobacco trade. 2015 Turkish Report of Anti-Smuggling and Organized Crime, Ministry of Interior

How did Turkey combat the Illicit Trade problem? In 2007, a digital tax-stamp system implemented using invisible ink and featuring a unique, covert code with product data for each cigarette pack Standard tax stamp provides only product security Digital tax stamp helps with tax revenue planning, improves accounting control, and contributes to tobacco control policy, as well Initiation of online "Monitoring/Tracking System for Products with Tax Stamps" prohibition of keeping products without tax stamp in the market Modernization of public entities

Turkey increased efforts against illicit trade while increasing taxes 143.4 million packs of smuggled cigarettes in 2015. It is estimated that the tax loss resulting from smuggled cigarettes seized would have been approximately 800 million Turkish Lira (~265 million USD—2.8% of revenues from tobacco taxes) 6.5 million 100 million 3.5 % points 3.4 % points 2015 Turkish Report of Anti-Smuggling and Organized Crime, Ministry of Interior

Conclusion CONTENTS Turkey’s Fight Against Tobacco Tobacco Taxation in Turkey Illicit Tobacco Trade Conclusion Conclusion

Conclusion Fighting successfully against tobacco requires Multi-Sectoral approach, Commitment, and Leadership Taxation is the most cost effective way to fight against tobacco Illicit Tobacco trade is an international problem requiring a global response Lax law enforcement, insufficient penalties, lack of effective international cooperation are main drivers of Illicit Tobacco trade; NOT high tobacco taxes Illegal trade activities can be controlled by strengthening the capacity of tax administration systems, focusing on both on legal means such as use of prominent tax stamps, serial numbers, special package markings, health warning labels in local languages, adoption of uniform tax rates nationwide that facilitate successful collection at the points of manufacture and import) increasing law enforcement including improving corporate auditing, better trace and tracking systems, and good governance

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