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BUSINESS: CIGARETTE SMUGGLING
Zero Risk
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THE
SMUGGLING SPECTRUM
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THE
MAGNITUDE
 NON-PREMIUM:
Up to 90 million cigarettes a month
PREMIUM: Over 100 million cigarettes a month
Cigarette smuggling is growing at the rate
of 20 per cent a year and already accounts for about 4 per cent of
the Indian market |
THE ROUTE
NON-PREMIUM:
Bangladesh, Myanmar and Pakistan
PREMIUM:
Nepal, Singapore and West Asia. Also through duty-free shops and passenger
baggage.
Premium smuggling involves transportation and sale without paying
taxes in country of origin or sale. In non-premium, the cigarettes
are bought legally and sold illegally in another country at a higher
price. |
THE PRICE (per cigarette)
NON- PREMIUM:
50 paise to 1 rupee
Indian equivalent
Rs 2.50
PREMIUM:
Rs 3.25-3.75
Indian equivalent
Rs 3.60
Smuggled cigarettes are priced at only a
third of what Indian cigarettes cost because they don't pay excise
or customs duty. |
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THE BRANDS
NON-PREMIUM:
 Aziz
Gold, Gold Leaf, Banani Gold, Rider, Good Luck, Friends (Bangladesh),
Peacock, Royal Edinburgh, Jet (Myanmar), Wills Flake (Pakistan)
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PREMIUM:
 Benson
& Hedges Special Filter, State Express 555 (BAT brands), Marlboro
Lights (Philip Morris brand)
Brands like Goldy, Boss and No.1 are also available in some regions.
It is not clear if they are smuggled or made in India.
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THE MARGIN
NON- PREMIUM:
Foreign brands: 80-100%
Indian brands: 8-10%
PREMIUM:
Foreign brands: 30-40%
Indian brands: 8-12%
Middlemen and retailers make a killing
by selling smuggled cigarettes. That is why they prefer to push
smuggled cigarette brands over Indian ones.
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REVENUE LOSS
NON-PREMIUM:
Rs 120 cr
PREMIUM: Rs 170 cr
(Figures are annual losses)
The estimates take into account only excise duty loss. If loss of
customs duty is also included, the dent could be up to Rs 500 crore.
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The
most recent of such reports is by a US-based organisation Campaign for
Tobacco-Free Kids. One of its studies titled "Illegal Pathways to
Illegal Profits" draws extensively from BAT's internal documents
to arrive at the conclusion that the company smuggled large consignments
of cigarettes into Bangladesh probably to push some of them into India
(see map). Chapter IV of the study clearly states: "Although BAT
has knowingly fostered cigarette smuggling throughout much of Asia, Bangladesh
was a particularly key destination, probably because of its large population,
the local preference for British-style cigarettes and its location adjacent
to the burgeoning market for major brands in India." The study also
quotes from BAT's documents to illustrate that the company's Singapore-based
distributor Singapura United Tobacco Limited had earmarked India as one
of the countries to promote general trade-a euphemism for illegal trade-in
cigarettes.
In another BAT document dated December 1993
one of its executives Andrew O'Regan proposed promoting sale of B&H
and se 555 through Indian duty-free shops. In his trip notes, O'Regan
wrote: "The source for the majority of the stocks (of cigarettes)
in the market (Indian) is very definitely the various Indian duty-free
outlets ... In my opinion this presents a very, very efficient and effective
method of supply ... There is practically zero risk from customs as no
borders have to be crossed and the trade margins are very attractive.
It is an appealing business in many ways, especially when compared to
the low and controlled margins on local brands."
To be fair, the evidence of BAT's intention
to smuggle cigarettes are at least seven years old when India was a more
protected market that it is now. But organisations like the UK-based Action
on Smoking and Health (ASH), which continue to investigate organised cigarette
smuggling, aver that in most Asian countries smuggling is still going
on. Says Clive Bates, director of ASH: "Once it's started, it is
difficult to check because of the fierce competition." Besides, cigarette
smuggling is growing in leaps and bounds worldwide.
Logic dictates that BAT should have no interest
in smuggling into India brands being manufactured in the country by its
associate ITC. But there is proof that MNCs do promote illegal import
of cigarettes into countries for parallel sales with legal versions of
the brand. For instance, the Campaign for Tobacco-Free Kids study found
that in "Bangladesh the smuggling of BAT brands was enhanced by what
BAT called 'umbrella operations' whereby small amounts of some BAT brands
were legally imported into a country to cover for much larger amounts
that were smuggled in at the same time. The simultaneous appearance of
legal and contraband supplies make it possible for vendors to openly display
and sell the contraband version of various brands while appearing to be
completely legal sellers."
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