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Tax Avoidance and Tax Evasion in 14 ITC countries – some preliminary results Emmanuel Guindon, PhD | 19 March, 2012 Effective Implementation of FCTC Policies.

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Presentation on theme: "Tax Avoidance and Tax Evasion in 14 ITC countries – some preliminary results Emmanuel Guindon, PhD | 19 March, 2012 Effective Implementation of FCTC Policies."— Presentation transcript:

1 Tax Avoidance and Tax Evasion in 14 ITC countries – some preliminary results Emmanuel Guindon, PhD | 19 March, 2012 Effective Implementation of FCTC Policies Pre-Conference Workshop 15 th World Conference on Tobacco or Health, Singapore

2 BACKGROUND “Sugar, rum, and tobacco, are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.” —Adam Smith, 1776, An inquiry into the nature and causes of the wealth of nations, Book V, Chapter 3, p. 474. “Every dollar raised by taxing harmful activities is one dollar less that we must raise by taxing useful ones. ” —Robert H. Frank, 2011, The Darwin Economy: Liberty, Competition, and the Common Good.

3 Decades of research have produced overwhelming evidence that tobacco taxes can reduce tobacco use, save lives and increase government tax revenue. The effectiveness of taxes at reducing tobacco use provides a strong incentive for tobacco users and manufacturers to devise ways to avoid or evade tobacco taxes.  Tobacco tax avoidance and tax evasion can erode the public health and fiscal benefit of tobacco taxes. BACKGROUND

4 Tax avoidance vs. tax evasion Tax avoidance by tobacco users involves legal purchasing behaviour with objective to pay less or no taxes on tobacco products: Examples include cross-border shopping, tourist shopping, duty free shopping and internet purchases. Tax evasion involves illegal methods of avoiding tobacco taxes. Such illegal activities include illicit trade or production of genuine or counterfeit tobacco products. BACKGROUND (CONT.)

5 Tobacco tax avoidance and evasion pose an array of challenges Relatively inexpensive, licit or illicit, tobacco products undermine public policies that seek to render tobacco products less affordable. Tax evaded cigarettes may be sold in packaging which do not provide the information which is required by regulations, such as health warnings and information on toxic emissions. Tobacco tax avoidance and evasion also decrease government revenue available for health and social programs, can result in increased criminal justice expenditures, and can provide unmonitored access to cigarettes by youth. BACKGROUND (CONT.)

6 DATA – THE ITC SURVEYS An international system for evaluating the impact of FCTC tobacco control policies Extensive surveys of probability samples of adult smokers in each country Longitudinal cohort design: same respondents are tracked over time Identical/similar methods/measures in all countries Selecting countries to evaluate policy via “natural experiments”

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8 Quantifying the magnitude of the tobacco tax avoidance/evasion Data from ITC surveys can be used to estimate the extent and the type of tax avoidance/evasion between countries and across time. In many countries, information about the source of a smoker’s last or usual purchase of cigarettes can provide key tax avoidance/evasion information. Out of state/province/country; Indian reservations; duty free; etc. Self-reported packaging information, or similar information gathered by the interviewers during face-to-face interviews can also provide key insights into tax avoidance/evasion behaviours. Non-standard or missing health warnings, tax stamps or authenticity labels. METHODS

9 METHODS: TAX AVOIDANCE AND TAX EVASION Source of last purchase of cigarettes Tax avoidance/evasion: Indian reservation Duty free Out of state/province/country Military commissary Toll-free number (mail/phone) Internet Independent seller Any direct purchase: Mail, phone or Internet

10 Percentage of respondents reporting the source of their last purchase of cigarettes TAX AVOIDANCE AND TAX EVASION – Canada, United States 4 country survey Wave 1 (Nov 02 - Dec 02) Wave 2 (May 03 - Sep 03) Wave 3 (Jun 04 - Dec 04) Wave 4 (Oct 05 - Jan 06) Wave 5 (Oct 06 - Feb 07) Wave 6 (Sep 07 - Feb 08) Wave 7 (Oct 08 - Jul 09) Wave 8 (Jul 10 - Jun 11) Mean Canada Indian reservation0.0200.0260.0380.0630.0800.1030.1040.095 Out of state/province/country0.003 0.0050.0030.001 0.0000.004 Duty free0.0060.007 0.0040.007 Any direct purchase (mail, phone or Internet)0.0000.001-0.000- 0.0010.002 Independent seller/friends/relatives0.0030.0040.0170.0120.0140.0180.0170.008 Military0.0000.001 0.000---- Refused/don't know/other---0.001- 0.0040.002 Total: any tax avoidance/evasion0.0330.0460.0620.0830.1000.1310.1320.118 United States Indian reservation0.0260.0300.026 0.030 0.044 Out of state/province/country0.0080.0040.0090.004 0.0020.0130.008 Duty free0.0040.002 0.0040.003-0.0010.004 Any direct purchase (mail, phone or Internet)0.0080.0140.0190.0100.0060.0090.0100.009 Independent seller/friends/relatives0.0010.0000.007 0.0050.003 Military0.0070.0110.010 0.0050.0060.0030.005 Refused/don't know/other0.0010.0030.001- - - Total: any tax avoidance/evasion0.0540.0640.0710.0580.0570.0530.0760.073

11 Percentage of respondents reporting the source of their last purchase of cigarettes TAX AVOIDANCE AND TAX EVASION – United Kingdom, Australia 4 country survey Wave 1 (Nov 02 - Dec 02) Wave 2 (May 03 - Sep 03) Wave 3 (Jun 04 - Dec 04) Wave 4 (Oct 05 - Jan 06) Wave 5 (Oct 06 - Feb 07) Wave 6 (Sep 07 - Feb 08) Wave 7 (Oct 08 - Jul 09) Wave 8 (Jul 10 - Jun 11) Mean United Kingdom Out of state/province/country0.0880.1040.1070.0880.0800.0920.0510.054 Duty free0.0440.055 0.0700.0680.0340.0680.058 Any direct purchase (mail, phone or Internet)0.0000.0010.0190.0010.0030.001-- Independent seller/friends/relatives0.0250.0320.0330.0370.0350.0320.0590.051 Military-------- Refused/don't know/other0.0010.0020.003-0.001--- Total: any tax avoidance/evasion0.1580.1930.1840.1800.1710.1590.1790.162 Australia Out of state/province/country0.0010.0020.001 0.002 0.0000.005 Duty free0.0070.0050.0060.0120.0050.0090.0140.015 Any direct purchase (mail, phone or Internet)-0.001 --- - Independent seller/friends/relatives0.0030.0040.0060.0050.006 0.007 Military-------- Refused/don't know/other0.000- 0.001-0.000-- Total: any tax avoidance/evasion0.0110.0130.0150.0190.0130.0160.0220.027

12 Percentage of total cigarette consumption that is tax avoided/evaded TAX AVOIDANCE AND TAX EVASION – Canada, United States, United Kingdom, Australia 4 country survey Wave 1 (Nov 02 - Dec 02) Wave 2 (May 03 - Sep 03) Wave 3 (Jun 04 - Dec 04) Wave 4 (Oct 05 - Jan 06) Wave 5 (Oct 06 - Feb 07) Wave 6 (Sep 07 - Feb 08) Wave 7 (Oct 08 - Jul 09) Wave 8 (Jul 10 - Jun 11) Mean Canada0.0360.0540.0700.1150.1310.1890.2110.199 United States0.0750.1010.1080.0760.0820.0790.1200.105 United Kingdom0.2050.2610.2430.2340.2420.2460.2370.224 Australia0.009 0.0140.0170.0110.0140.0180.017

13 Percentage of respondents reporting the source of their last purchase of cigarettes TAX AVOIDANCE AND TAX EVASION – France France Wave 1 (Dec 06 - Jan 07) Wave 2 (Sep 08 - Nov 08) Mean Out of country (inside EU)0.1280.167 Out of country (outside EU)0.0100.016 Duty free0.015 Any direct purchase (mail, phone or Internet)-0.001 Independent seller/friends/relatives0.0050.007 Refused/don't know/other0.001- Total: any tax avoidance/evasion0.1580.206

14 Percentage of respondents reporting the source of their last purchase of cigarettes TAX AVOIDANCE AND TAX EVASION – Ireland and Scotland Ireland/Scotland Wave 1 (Dec 03 - Jan 04) Wave 2 (Dec 04 - Jan 05) Wave 3 (Feb 06 - Mar 06) Mean Ireland Out of country0.0080.0130.028 Duty free0.0170.0320.018 Any direct purchase (mail, phone or Internet)0.0020.0000.005 Independent seller/friends/relatives0.0040.0030.010 Refused/don't know/other0.0030.0010.002 Total: any tax avoidance/evasion0.0330.0490.063 Scotland Out of countryn.a. 0.037 Duty freen.a. 0.022 Any direct purchase (mail, phone or Internet)n.a. 0.002 Independent seller/friends/relativesn.a. 0.010 Refused/don't know/othern.a. 0.002 Total: any tax avoidance/evasionn.a. 0.072

15 Percentage of respondents reporting the source of their last purchase of cigarettes TAX AVOIDANCE AND TAX EVASION – Netherlands Netherlands Wave 1 (Mar 08 - Apr 08) Wave 2 (Nov 08 - Dec 08) Wave 3 (Mar 09 - May 09) Wave 4 (May 10 - Jun 10) Wave 5 (May 11 - Jun 11) Mean Out of country (inside EU)0.014n.a. 0.0270.029 Out of country (outside EU)0.001n.a. 0.0050.009 Duty free0.007n.a. 0.0030.008 Any direct purchase (mail, phone or Internet)0.000n.a. -0.001 Independent seller/friends/relatives0.004n.a. 0.0060.005 Refused/don't know/other*0.013n.a. 0.0240.036 Total: any tax avoidance/evasion0.040n.a. 0.0640.087 * Unlike other ITC surveys, the Netherland surveys do not contain a follow up question for individuals who responded "other" as the source of their last purchase of cigarettes.

16 Warning labels, tax stamps, authenticity labels TAX AVOIDANCE AND TAX EVASION – Malaysia, Thailand Malaysia/Thailand Wave 1 (Jan 05 - Mar 05) Wave 2 (Aug 06 - Jun 07) Wave 3 (Jan 08 - Aug 08) Wave 4 (Apr 09 - Nov 09) Mean Malaysia Warning labels: - non standard warning labels0.0340.0490.056n.a. - no warning labels0.0340.0730.029n.a. Tax stamps: - no tax stamps or security ink0.0910.1150.321n.a. - duty free stamp (pink)n.a. 0.069n.a. - refusedn.a.0.0030.001n.a. Thailand Warning labels: - non standard warning labels--0.001 - no warning labels0.003-0.0040.010 Tax stamps: - no tax stamps or security ink--n.a. - refusedn.a.0.003n.a.

17 Warning labels, tax stamps, authenticity labels TAX AVOIDANCE AND TAX EVASION – Bangladesh, Mauritius, Uruguay Bangladesh Wave 1 (Feb 09 - May 09) Wave 2 (Mar 10 - Jun 10) Mean Tax stamps: - no tax stamps0.0040.037 Note: Based on a small sample of respondents who provided an empty pack to interviewers Mauritius Wave 1 (Apr 09 - May 09) Wave 2 (Aug 10 - Oct 10) Wave 3 (Jun 11 - Jul 11) Mean Tax stamps: - no tax stamps0.1470.0850.026 - don't know0.0720.0640.063 Uruguay Wave 1 (Oct 06 - Dec 06) Wave 2 (Oct 08 - Feb 09) Wave 3 (Oct 10 - Jan 11) Mean Warning labels: - non standard warning labels0.0480.0370.093 - no warning labels0.0220.0300.074

18 Prices, pack of 20 (local currency units) TAX AVOIDANCE AND TAX EVASION – PRICES – Canada, United States, United Kingdom Wave 1 (Nov 02 - Dec 02) Wave 2 (May 03 - Sep 03) Wave 3 (Jun 04 - Dec 04) Wave 4 (Oct 05 - Jan 06) Wave 5 (Oct 06 - Feb 07) Wave 6 (Sep 07 - Feb 08) Wave 7 (Oct 08 - Jul 09) Wave 8 (Jul 10 - Jun 11) Mean Canada Indian reservation -ITC4.924.234.584.023.673.423.524.01 Any tax avoidance/evasion -ITC5.084.605.114.283.823.683.844.40 No tax avoidance/evasion -ITC6.256.556.706.826.977.157.297.55 All -ITC6.226.476.646.716.786.887.077.29 CPI -Statistics Canada5.906.226.706.907.177.437.678.22 United States Indian reservation -ITC2.322.192.722.502.862.682.823.48 Any tax avoidance/evasion -ITC2.292.262.472.492.852.952.933.71 No tax avoidance/evasion -ITC3.383.263.303.523.603.824.215.04 All -ITC3.333.203.253.473.563.784.114.95 United Kingdom Any tax avoidance/evasion -ITC2.102.202.422.432.402.522.483.21 No tax avoidance/evasion -ITC4.014.154.324.494.714.875.075.44 All -ITC3.783.904.094.274.504.594.825.24

19 GIS – CANADA A closer look at the provinces of Ontario and Québec

20 GIS – CANADA A closer look at the provinces of Ontario and Québec

21 GIS – CANADA A closer look at the provinces of Ontario and Québec

22 GIS – CANADA A closer look at the provinces of Ontario and Québec

23 GIS – CANADA A closer look at the provinces of Ontario and Québec

24 GIS – CANADA A closer look at the provinces of Ontario and Québec

25 GIS – CANADA A closer look at the provinces of Ontario and Québec

26 GIS – CANADA A closer look at the provinces of Ontario and Québec

27 ACKNOWLEDGEMENTS Collaborators Frank Chaloupka, University of Illinois at Chicago Pete Driezen, University of Waterloo Geoffrey Fong, University of Waterloo

28 28

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