1. Tobacco taxation and illicit trade
Tobacco taxation and illicit trade. Challenges for Tax and Customs Administrations in LCR April 2017
Enrique Fanta
Senior Trade Facilitation Specialist

2. General Aspects on Tax and Customs Administrations Latinoamerican Region
Tax and Customs with professional staff, modern IT System for processing basic Tax and Customs processes (Registration, Filing, Payments, Declarations, Risk Management)
Weak coordination between Tax and Customs. Several countries have separate agencies to carry internal tax and border tax compliance (Bolivia, Chile, Cuba, Ecuador, Dominican Republic, Haiti, El Salvador, Nicaragua,Uruguay) On those with single body, still control enforcement coordination is a challenge, by lack of common databases, workable single taxpayer account, common audit programs.
Trade integration and common rules for Customs control surging (MERCOSUR, CAUCA and Free Trade Agreements allowing interchange of Information) Also some starting Solutions for transits (MIC DTA for South America and TIM initiative for Central America.
Low penalties for smuggling and lengthily judicial processes.

3. Examples of good practices for enforcing tobacco tax compliance in LCR
Registration and inventory control. Countries have special register for tobacco plant ploducer, tobacco manufacturing, and distributors, with special care on Free Zones (Argentina, Chile, Uruguay)
Stamp. Almost every country in LCR have stamp control with different levels of development. Brazil is using holographics, and Ecuador is considering technology used for alcohol tax control, with stamps readable by smartphones
Incompliance Studies. Several countries have VAT evasion studies, allowing Information about internal tobacco tax compliance. Chile have developed specific studies on tobacco compliance. First one was made in 1995 based on surveys to kiosks and retail tobacco sellers. En 2015 Chilean Customs has elaborated an study based on consumption. Bolivia, Colombia, Brazil have also elaborated studies about tobacco smuggling

4. Examples of good practices for enforcing tobacco tax compliance in LCR cont.
Coordinated body for tobacco taxation control. Several countries are establishing anti smuggling committees, with dedication to tobacco and other illicit trade. Colombia, after enacting new anti smuggling law has implemented a coordinated team including Customs, Police and other border control agencies. Chile has special Group for tobacco control, with representatives from IRS, Customs, National Prosecutor, Health, Transport authorities, National Police and Coastguard. Also special team for tax and Customs joint audits.
Use of Scanners and other electronic devices. Most countries are implementing use of scaners and GPS based tech to follow trucks and sensitive cargo, like tobacco. El Salvador, Argentina, Uruguay, Mexico, Chile and others have designed a control strategy with use of scanners. Peru is testing electronic seals fro trucks.

5. Challenges Coordination
High level support for enforcement committees, including Tax, Customs, Health, Police and other border agencies
Joint work between Tax and Customs on audits. On Federal organanized countries with subnational taxation, ensure a common body for internal tobacco tax.
Measure
Detailed information on consumption inventories, imports, production, warehousing and retailers of tobacco
Incompliance studies, not only for knowing how much is illicit trade, but for clues on routes and ways of illicit trade

6. Challenges cont
Follow the money. Most of tobacco illegal trade is manage by organized crime. So actions oriented to audit tobacco financists in the whole change might be performed
Use of Technology in a coordinated control strategy. Cheap electronic chip based stamps are on the horizon. Scanners cost have drop. Electronic seals and GPS are becoming an standard for trucking companies. Using these technology with adequate control strategy (rapid reaction teams, for example) may help to achieve better results on enforcement
International collaboration. Free Trade agreements have always a clause about interchange of Information between Customs (as well as WCO Trade Facilitation Agreement). Prior to arrival Information and declaration should be implemented.
Timely hard sanctions to illicit trade. Increase sanctions to the whole illicit trade chain (for example, seizing smuggler truck while trial lasts.