1. Asia 11 study on illicit tobacco in 2012 Andy Logan Associate Director, Oxford Economics 2 July 2014

2. Methods to estimate the scale of illicit cigarettes Smoker surveys Empty pack and cigarette butt collection and analysis Household surveys/consumption estimates compared with tax-paid products Seizures International trade data

3. Empty pack surveys Collect empty packs and analysing discarded butts. Industry recognizes EPS as best practice as evidence of actual activity. Run by external agency.

4. A few minor problems with EPS Geographical coverage – e.g. is the coverage of urban vs rural locations appropriate? Timing of survey – e.g. is there a possibility that the findings are not representative as they cover periods when tourist flows are greatest? Brand coverage – e.g. does the survey exclude important brands given market composition? Packs versus sticks – e.g. how does the survey treat differences in pack size and what implications does this have for estimates of non-domestic/illicit incidence? Other tobacco products (OTPs) – e.g. to what extent do the surveys include the illicit trade in OTPs?

5. Direct surveys of smokers Asking samples of smokers where they buy their tobacco products. Advantage Provides a more direct route to assessing the size of the problem of illicit purchases at any point in time. Problems Respondents under report the extent to which they smoke. Under report the extent they consume illegal products. May not even be aware that they are purchasing illicit tobacco.

6. Compare duty paid to estimates of consumption Legitimate Consumption Duty Paid Consumption Cross-boarder shopping Duty Free Illegitimate Consumption Total Consumption Legitimate Consumption

7. Compare duty paid to estimates of consumption 2 Total consumption Estimates of prevalence (proportion of the population that smokes cigarettes) Estimates of cigarette consumption per smoker An uplift factor covering under-reporting Estimates of the adult population Problems: (1)There are some smokers who do not admit they smoke (2)Some of the smokers who admit they smoke do not know how much, or choose to under-report the amount

8. Seizures by police or customs authorities The quantity of illegal cigarettes seized by the authorities Advantages Official government statistics. Useful to understand illicit trade routes. Problems with this measure Can only represent a small proportion of the illicit trade. If comparing over time, ignores effort and expenditure levels of the enforcement authorities. Some element of luck.

9. Using trade data Focuses on inwards flows of cigarettes into a country Does the value of country A’s exports of tobacco to country B should equal B’s imports from A. Advantages Trade data readily available. Problems Different countries’ trade recording systems have different accuracies. Exchange rate valuations.

10. Lessons on measurement techniques All five methods have their strengths and weaknesses. Empty pack surveys are probably the best method of calculating the size of the illicit market. Useful to repeat the same method over time to understand whether the illicit trade is growing or decreasing and at what rate. But should monitor a number of the methods to see if you get a consistent picture.

11. Asia 11 report To establish credible estimates of consumption of illicit cigarettes and the impact this has on tobacco tax revenue for 11 markets in Asia. To do this it: Validate illicit incidence levels, reviewing and refining estimates currently available through Empty Pack Surveys and other sources. Estimate Illicit Consumption in terms of volume, including where possible a breakdown by country/market of origin and a breakdown between legal and Illicit Consumption. Estimate annual government revenue losses from excise, VAT/GST, and earmarked taxes on cigarettes.

12. Countries in the study

13. Whole market

14. Asia-11: Consumption breakdown

15. Estimates of individual country shares

16. Estimates of the number of illicit cigarettes

17. Estimates of illicit market share

18. Estimates of tax losses

19. Further analysis of illicit

20. Estimated make-up of illicit in each country

21. Conclusions from Asian 11 report In 2012, 9% of cigarettes consumed in Asia-11 were illicit. Illicit share was over 25% in five markets (Hong Kong, Malaysia, Singapore, Pakistan, and Brunei) Illicit volumes were highest in Pakistan, Vietnam, and Malaysia. Domestic illicit cigarette volumes were highest in Pakistan and the Philippines. Asia-11 government tax revenue losses from Illicit Consumption totalled US$ 3.4 billion in 2012.

22. Thank you