Conference "Anti-counterfeit"

#industry news

The strengthening of control and the improvement of legislation actually made it possible to stop the growth of the shadow tobacco market in Russia. At the same time, in a number of regions of the North-West, where counterfeit goods come from the Eurasian Economic Union, the share of illegal products is still at a much higher level than in the whole country.

Harmonization of excise taxes with neighboring countries, expansion of the powers of relevant bodies, further strengthening of supervisory activities and interdepartmental interaction will help to reverse the situation, according to the participants of the online conference "Illegal turnover of tobacco products: Novgorod, Pskov, Murmansk regions".

In 2022, the growth rate of the shadow tobacco market in Russia slowed down, and its volume in the second quarter increased by only 0.6%. However, the scale of this problem remains serious. According to the results of the second quarter of last year, every twelfth pack of cigarettes in the country was illegal, follows from the data of the National Scientific Center of Competence in the Field of Combating Illicit Trafficking in Industrial Products (NCCR). In the North-Western region, the situation looks even more critical. In the Novgorod region, the share of illegal products for the same period was 43.6%, in the Pskov region — 24.6%, in St. Petersburg - 18.8%. The Murmansk Region, Karelia and Komi look more advantageous against this background, where counterfeit accounts for only 3.8, 1.2 and 0.2%.

The shortfall in federal budget revenues from illegal tobacco trade in 2022 will amount to 113 billion rubles in the form of excise taxes and VAT, Roman Troshkin, manager for work with public authorities at JTI Russia, calculated. Counterfeit goods are also expensive for regions. According to the first deputy of the NCCR Baysolt Khamzatov, the budget of the Novgorod region only missed 993.7 million rubles in the first half of the year, the Pskov region — 545.3 million rubles, the Murmansk region — 155.2 million rubles. In addition, legal retail suffers, which annually loses at least 10 billion rubles due to dishonest price competition, Mr. Troshkin points out.

Tobacco without borders

The preservation of the share of shadow products at the same level in 2022 was influenced by a significant decrease in the number of control measures initiated cases of administrative offenses in connection with the moratorium on inspections, said Vladislav Zaslavsky, Deputy director of the Department of digital marking of goods and legalization of product turnover of the Ministry of Industry and Trade of Russia. Among other factors, he highlighted a significant increase in the presence of uncontrolled nicotine-containing products on the market and the incompleteness of the reform in the sphere of regulation of the industry.

The work carried out in previous years was largely negated by an increase in the excise tax rate on cigarettes, which increased by 20% at the same time, adds Igor Cherkassky, head of the department for combating illegal trade of the BAT Russia group of companies. As a result, their cost has increased by 25% year on year, he states.

Another negative factor is the supply of illegal products from the EAEU countries, where excise taxes are several times lower. "Taking advantage of the openness of borders, unscrupulous business illegally imports unmarked cigarettes into Russia without paying excise duty and sells them here," the official describes the problem. The EAEU countries are the main source of illegal products, Mr. Khamzatov emphasizes. First of all, we are talking about products of Belarusian origin, which account for 92% of cigarettes illegally imported into the country from this region, the expert said. The minimum prices for cigarettes in Belarus are 30 rubles per pack, while in Russia this figure reaches 112 rubles, says Mr. Troshkin.

A significant difference in excise rates between the EAEU countries also creates prerequisites for the smuggling of nicotine-containing products (tobacco sticks for tobacco heating systems, electronic nicotine delivery systems, disposable electronic cigarettes), says Elena Kiyanova, Corporate Affairs Manager of the North region of Philip Morris International affiliated companies in Russia. "Most of these products either enter the country illegally, or are declared as electronic products that are not subject to excise taxation, which leads to billions of budget losses," she complains. In particular, there are flows to Russia of tobacco sticks intended for sale in Kazakhstan and Armenia, which are imported without paying excise taxes, Ms. Kiyanova said.

Now 80-85% of nicotine-containing products are illegal, says Maxim Kurgansky, Director for the protection of the turnover of legal Products of the Center for the Development of Advanced Technologies. "A separate concern is the volume of the market for nicotine—containing liquids, which is estimated by experts at 1 trillion ml. Often users independently purchase components for the production of liquids and change the concentration of nicotine at home, which, of course, does not allow us to talk about the safety of such a product," Ms. Kiyanova points out.

Suppression and whitewashing

The strengthening of the work of control and supervisory authorities will help to change the situation in the tobacco market, Mr. Zaslavsky expects. To do this, the Ministry of Finance has prepared bills on separate regulation of the industry, where, among other things, a single authority in the field of tobacco control is determined, the official recalls.

It is important that law enforcement and control bodies continue to increase their activity to identify illegal industries, large distributors of illegal products and stop its sale at retail, lists Ms. Kiyanova. The lifting of the moratorium on scheduled inspections of excisable products can help the work of law enforcement officers to whitewash the market, Mr. Troshkin continues.

In addition, there is a need to expand the powers of regulatory authorities. Executive Director of the Public Council on the Problem of Teenage Smoking Anna Sorochinskaya considers it necessary to simplify the rules of control procurement for Rospotrebnadzor. According to her, the department already had the right to conduct them without the approval of the prosecutor's office, but then the situation changed. The position of the prosecutor's office regarding unscheduled inspections differs depending on the region, confirms the head of Rospotrebnadzor in the Novgorod region Elena Nikiforova. "They still protect the business to a certain extent, since there is no immediate threat of causing serious harm to health," she concludes.

Associate Professor of the Department of Customs Administration of the North-West Institute of Management of the RANEPA Anastasia Hetman proposed to allow the Federal Customs Service to work under Article 180 of the Criminal Code of the Russian Federation (illegal use of means of individualization of goods). "This is the main article in the Criminal Code related to intellectual property violations, the data on which is now being transferred under the jurisdiction of the internal affairs bodies," the expert comments.

Vladislav Zaslavsky considers it expedient to empower the regions to carry out control and supervisory activities within the framework of the Code of Administrative Offenses by analogy with the alcohol market. If at the same time there is a redistribution of part of the income from excise taxes on tobacco to the budgets of the subjects, then this encourages the regional authorities to counteract illegal trade, the official is convinced. "This measure will be effective if the receipt of money to the budget will directly depend on the effectiveness of the actions of the subjects," he hopes.

Digital marking can simplify the work of relevant authorities in the regions, says Mr. Khamzatov. "In this case, law enforcement officers do not need to have special skills and be guided by what signs distinguish a legal product from an illegal one. It's enough just to point the smartphone at the product," Mr. Khamzatov describes the mechanism of the system.

Digital marking will also be effective in countering the illegal trade in nicotine-containing products. Its implementation is important from an economic point of view, as it will provide additional tax revenues, Ms. Kiyanova is sure. An example of alternative tobacco products (hookahs, cigarillos, tobacco) is indicative, which was previously at a comparable level, but after the introduction of marking fell significantly, Mr. Kurgansky points out.

Excise harmony

Another way to increase the effectiveness of the fight against the shadow market is interdepartmental cooperation. Due to the exchange of information and joint inspections with the police and Rospotrebnadzor for ten months of 2022, it turned out to identify more than 4 million packs of contraband cigarettes, Yana Gavrilova, an employee of the North-West Operational Customs, cites statistics.

Cooperation between the agencies also plays a significant role in preventing the import of illegal products into Russia. As a result of joint measures with the customs, the number of criminal cases initiated on heavy compositions has increased significantly, as well as the volume of seized tobacco products, said Vadim Filippov, Deputy head of the Department of Economic Security and Anti-Corruption of the Ministry of Internal Affairs of the Pskov region.

In the conditions of broken logistics chains, the number of entry points of illegal products from the country has increased, so the exchange of information between regulatory authorities within the Customs Union is of great importance, says Oksana Kuzmenko, President of the Basis Association.

The completion of the harmonization of excise taxes between the member countries of the union should reduce the price and physical availability of illegal cigarettes from the EAEU, Mr. Zaslavsky expects. Levelling excise taxes is one of the key measures that can affect the level of illegal trade, confirms Mr. Cherkassky. But you need to understand that the gap in rates between Russia and Belarus will be reduced to 25% only by 2024, the expert warns. According to him, this is the threshold after which it will not be so profitable to import tobacco products from the EAEU. Among other important steps to prevent illegal importation, it is possible to single out the introduction of a limit on the movement of unmarked cigarettes and responsibility for the transportation of tobacco products across the state border, as well as the emergence of additional powers for control bodies, Mr. Troshkin added.

Despite the efforts of the supervisory authorities (bodies) and the adopted laws, it`s not the time to relax, Igor Cherkassky is sure. According to a number of reserches, every second smoker is ready to switch to illegal cigarettes, so there is a possibility of a negative scenario, he explains. In this regard, Uzbekistan can be cited as an example, where the share of illegal products increased from 1.2% to 14.9% in one year, he recalls. In this regard, it is extremely important to maintain the intensity and rhythm of control and supervisory efforts to combat the illegal market of tobacco and nicotine-containing products, Ms. Kiyanova summarizes.