Objective To compare two different methods for estimating the size of the illicit cigarette market with each other and to contrast the estimates obtained by these two methods with the results of an industry-commissioned study.
Methods We used two observational methods: collection of data from packs in smokers’ personal possession, and collection of data from packs discarded on streets. The data were obtained in Warsaw, Poland in September 2011 and October 2011. We used tests of independence to compare the results based on the two methods, and to contrast those with the estimate from the industry-commissioned discarded pack collection conducted in September 2011.
Results We found that the proportions of cigarette packs classified as not intended for the Polish market estimated by our two methods were not statistically different. These estimates were 14.6% (95% CI 10.8% to 19.4%) using the survey data (N=400) and 15.6% (95% CI 13.2% to 18.4%) using the discarded pack data (N=754). The industry estimate (22.9%) was higher by nearly a half compared with our estimates, and this difference is statistically significant.
Conclusions Our findings are consistent with previous evidence of the tobacco industry exaggerating the scope of illicit trade and with the general pattern of the industry manipulating evidence to mislead the debate on tobacco control policy in many countries. Collaboration between governments and the tobacco industry to estimate tobacco tax avoidance and evasion is likely to produce upward-biased estimates of illicit cigarette trade. If governments are presented with industry estimates, they should strictly require a disclosure of all methodological details and data used in generating these estimates, and should seek advice from independent experts.
- Tobacco industry
- Illegal tobacco products
Statistics from Altmetric.com
It has been well documented that the tobacco industry was, and probably still is, involved in smuggling of its products.1 ,2 Trading cigarettes illegally enables the industry to access closed markets, creates pressure for market openings,1 and helps to generate higher profits by circumventing tobacco taxation. Transnational tobacco companies have been found guilty of organising illicit tobacco trade, and have paid billions of dollars in fines and penalties in compensation.3 Yet, it does not stop the industry from being involved in national-level and international-level illicit trade control activities, and working together with governments and intergovernmental agencies as a partner in combating illicit trade.4
One area of this collaboration involves estimating the scope of tobacco tax avoidance (legal methods of circumventing tobacco taxes) and tax evasion (illegal methods for circumventing tobacco taxes). In Europe, for example, as per a 12-year cooperation agreement between the European Union Member States, the European Commission and Philip Morris International (PMI),5 the scope of cigarette tax avoidance/evasion has been estimated by Project Star, a study relying on discarded pack surveys and industry data, conducted by KPMG LLP, and paid for by PMI.6 Project Star results are frequently used by the Commission and the local policymakers (eg, Ministry of Finance in Poland7 ,8). The illicit trade estimates produced by the tobacco industry have been also used to inform the foundations of public policies in countries outside Europe, such as South Africa9 and Australia.10 The tobacco industry uses its estimates to lobby against tobacco control measures,11 particularly tobacco tax increases, standardised packaging and product display bans.10
There is a tendency for the illicit trade estimates from the industry-commissioned studies to be higher than those from academic studies.12 Joossens et al13 compared the Project Star estimates with the estimates based on the data from packs presented by smokers interviewed in 18 European countries within the Pricing Policies and Control of Tobacco in Europe (PPACTE) project. They found that the Project Star estimates were higher in 11 countries, and lower in 5 countries, than those from the PPACTE project. Project Star estimates were also higher than those based on data from packs presented by smokers within the Global Adult Tobacco Survey in Poland (14.6% vs 8.5% in 2009).6 ,14 In Australia, the discrepancy between estimates from the industry-commissioned studies and those from the academic studies was even larger (15.9% vs 3% in 2010).15
There are two potential reasons for the discrepancy between the industry estimates and the estimates from academic studies. First, the inconsistency might result from the differences between the methods applied. The discarded pack collection, a method frequently used by the industry (eg, Project Star), might overestimate illicit trade, because those who litter might be less likely to obey rules, such as buying only legal cigarettes.16 On the other hand, surveys of packs presented by smokers, a method often used by researchers (eg, Cambodia,17 Poland,14 ,18 Ukraine 19), may underestimate the illicit trade, because individuals who purchased cigarettes illegally might be less willing to present their packs.18
Second, since the tobacco industry has a long history of manipulating evidence for their benefit,20 some suggest that the industry estimates exaggerate the scope of illicit trade. For example, Adams and Effertz pointed out that in Germany the sampling method used by the industry was not nationally representative, with systematic over-representation of geographical regions along the country's border and around USA military bases, where more tax avoidance and evasion is expected.21 In the UK, the Tobacco Manufacturers Association also conducted studies of illicit trade based on non-representative samples of littered cigarette packs.16 With limited information about the methodology of the industry-commissioned pack collections it is difficult to determine the exact reason for the discrepancy.
This paper offers the first comprehensive comparison between two methods that use pack data to estimate cigarette tax avoidance and evasion: survey of packs in personal possession and packs discarded on streets. It also compares the results from these two methods with results from an industry-commissioned study.
Data and methods
We used two observational methods: data collection from packs in smokers’ personal possession and packs discarded on streets. The collection took place in Warsaw in September–October 2011. Two pack features determined whether the pack was intended for the Polish market: excise tax stamps and health warnings. Each legitimate cigarette pack must bear a Polish tax stamp and an approved health warning in Polish. The tax stamp is affixed under a cellophane cover.22 In order to determine whether a tax stamp was legitimate, we compared it with a sample of official tax stamps provided by the Ministry of Finance.23
A missing tax stamp is not always an indicator of tax avoidance/evasion. The stamps may be removed by a consumer, or may fall off a pack, especially in case of discarded packs. Therefore, only packs with a tax stamp issued by another country or without the Polish health warning were classified as packs non-taxed in Poland. Packs with missing or damaged tax stamp, but with a Polish health warning were counted as tax-paid cigarettes.
Data from packs in personal possession were collected by a market research agency, GfK Polonia, in Warsaw in October 2011 using a quota sampling method. The data collection protocol was approved by the Northeastern Illinois University Institutional Review Board. The population of smokers in Warsaw was segmented by districts and by gender and age. The quota of 400 observations was distributed among each of Warsaw's 18 districts proportional to the districts’ population. As no Warsaw-level data on gender and age of smokers were available, the gender and age sample proportions were based on characteristics of smokers living in Polish cities with more than 500 000 inhabitants (see online supplementary appendix 1 for the gender/age and the district sample proportions).
The interviews were conducted at various times of the day in an effort to include smokers who are not at home during working hours. Each interviewer had a number of randomly assigned street addresses as starting points in a district. This number depended on the quota for that district. From a given starting point, the surveyor had to conduct five interviews before moving on to their next starting point in another neighbourhood. If the starting point address was an apartment building, the interviewer would go to a randomly selected apartment. In each household, the surveyors would ask for a smoker, and if the person met the age and sex criteria, the interview was conducted. To choose the next household, the surveyor could ask if any of the neighbours was a smoker (snowball method) or go to the next household three doors away.
During each interview the smoker was prompted to show all open cigarette packs in their possession. This is different from the Global Adult Tobacco Survey that asked smokers to show only one open pack. The information on number of open packs and the presence/absence of Polish tax stamp and health warning on each pack was collected. If more than one pack was open, the tax avoidance/evasion was assessed based on the pack being smoked most often, as indicated by the smoker. Additionally, detailed information on the non-tax-paid packs was collected, including the information on the tax stamp (country issuing the stamp/stamp damaged/no stamp), the health warning (language of the health warning/no warning), the maximum price of the pack (printed on the bottom of the pack), the brand and the year the tax stamp was issued. The smoker was asked about the place of purchase of the pack. Sociodemographic characteristics of each smoker were also collected. The pack characteristics data were weighted by the self-reported amount of monthly cigarette consumption (eg, data collected from a person who smokes 60 packs a month would count twice as much as the data collected from a person who smokes 30 packs a month).
The discarded packs were collected in September 2011 in 30 of 783 voting districts in Warsaw. Our methodology was inspired by methods developed by David Merriman and applied in his studies in Chicago16 and New York.24 The sample voting districts were selected randomly using the probability proportional to size method, so that the probability of each district being selected was weighted by the number of adult permanent residents of that district. In each selected district, we designed a 3 km (1.86 miles) route on which two people picked up every littered cigarette pack. A typical route required data collectors to walk 1.5 km along several streets in the district and returning back to the starting point on the other side of the streets. Because voting districts are small geographical areas, a typical route would cover a substantial portion of each district (see online supplementary appendix 2 for more information on the routes design process). A total of 754 packs were collected, each placed in plastic bags, labelled with a unique serial number, and returned to the research office where pack data were entered to a database. That information included cigarette brand, package type (hard/soft), cigarette length, cigarette type (filtered/unfiltered), tax stamp details (country issuing the stamp/stamp damaged/no stamp) and health warning details (the language of the health warning/no warning).
We compared our results with results from an illicit cigarette study commissioned by four major tobacco companies (British American Tobacco, Imperial Tobacco Group, Japan Tobacco International and PMI) and conducted by the Almares market research company in August–September 2011.25 Despite the original sampling target of 34 000 packs, the study collected 694 547 discarded cigarette packs from streets and public bins in 70 cities in Poland. The reason this sample size changed so dramatically remains unclear. The sampling plan called for 15.6% of the sample packs to be collected in Warsaw; therefore we estimate that over 100 000 cigarette packs were collected in this city alone, a sample over 100 times larger than our sample.
Despite internet searches and multiple attempts to contact the tobacco manufacturers and the research company, we do not have all details of the method used by the tobacco industry. For example, we lack information on how the sample paths and bins for the discarded pack collection were selected, what pack features were taken into account when deciding whether the pack is tax-paid or non-tax-paid. We only know that the packs were examined by the four respective producers to find counterfeit cigarettes.
We used a Pearson χ2 statistic to compare the results of our pack collection with the industry results. To account for the weights in the survey data when comparing the results of our two methods, we employed a second-order correction of Rao and Scott that uses the F statistic.26
Using the survey data (N=400), we estimate that the share of non-taxed cigarettes reached 14.6% (95% CI 10.8% to 19.4%) of the total cigarette market in Warsaw. Using the discarded pack data (N=754), we estimate this share at 15.6% (95% CI 13.2% to 18.4%). The difference between these two estimates was not statistically significant.
The survey found that 14.8% (95% CI 10.9% to 19.6%) of the packs smoked in Warsaw did not have the Polish excise tax stamp, while the share of packs without Polish tax stamp was 23.6% (95% CI 20.7% to 26.8%) among those found on the streets. This was due to higher proportion of packs with damaged or missing stamps among the discarded packs. The difference between the two proportions is statistically significant. The share of packs without Polish health warning was 14.6% (95% CI 10.8% to 19.4%) based on the survey and 15.6% (95% CI 13.2% to 18.4%) based on packs found on the streets, a non-significant difference (table 1). Eight smokers in the household survey (2%) presented taxed and non-taxed packs. Half of them indicated the taxed pack as being smoked most often. Fifty smokers (12.5%) presented packs that were not intended for the Polish market. When the pack information from the surveys was weighted by the declared number of cigarettes smoked each month, the share of non-taxed cigarettes reached 14.6% due to higher smoking intensity among smokers avoiding/evading taxes.
The study of discarded packs commissioned by the tobacco companies classified 22.9% of packs found in Warsaw as not intended for the Polish market, but we do not know the characteristics of these packs. This estimate is 47% higher compared with our estimate based on discarded packs (15.6%), and this difference is statistically significant (χ2=22.327; p<0.001); however, the industry estimate is similar to our estimate of the prevalence of packs with no Polish tax stamp (χ2=0.212; p=0.645).
Discussion and conclusions
Measuring tobacco tax avoidance/evasion is a complex task due to the illegal nature of some activities involved.27 Observational studies provide a direct way to assess tobacco tax avoidance/evasion through collection of reliable data from tobacco products’ packs/containers.28 We found that the proportion of packs classified as not intended for the Polish market is not statistically different between the packs in personal possession and those discarded on the streets.
Both methods, the survey of packs in smokers’ possession and the discarded pack collection, have limitations. First, it may be hard or even impossible to differentiate between packs intended and not intended for the domestic market, when there are no unique characteristics of the incountry tax-paid packs (eg, when no tax stamps are required, the stamps are not attached directly to a pack or the health warnings are not unique). Second, there might be mistakes in data coding. Third, in the household survey, smokers might be reluctant to present their non-taxed packs or participate in the survey, even though possessing a non-taxed pack is not illegal in Poland. Additionally, both methods cannot detect counterfeit packs that have all required characteristics, unless more sophisticated processes are included (eg, engaging experts from Ministries of Finance). Implementation of tracking and tracing measures, such as unique codes on every pack,29 would facilitate the estimations of tobacco tax avoidance/evasion. The Protocol to Eliminate Illicit Trade in Tobacco Products adopted by the parties to the WHO Framework Convention on Tobacco Control requires the parties to implement tracking and tracing systems within 5 years after the protocol enters into force, which is 5 years after the 90th day following the 40th party joining the protocol.30
Finally, among the packs classified as not intended for the domestic market, both methods fail to distinguish smuggled or illegally manufactured packs from legitimate packs that were purchased in duty-free shops or outside Poland in the amount allowed by the law. Nevertheless, Polish tobacco taxes were circumvented, which is a concern for tobacco tax revenue authorities and for those concerned with public health.
Our study suggests that the researchers studying tobacco tax avoidance/evasion using the discarded pack collection method should not base their estimates on missing stamps alone. We found statistically more packs without the Polish tax stamp in the discarded pack collection than in the survey of packs in smokers’ possession. This suggests that many of the discarded packs might have lost their stamps before the collection. The stamps might have been torn off by smokers before being littered, or washed off by rain while lying on streets. When only the tax stamp data are taken into account, collecting discarded packs will overestimate the tax avoidance/evasion. Redesigning tax stamps so that they are permanently affixed to cigarette packs would make the litter sampling method more reliable, and could assist with enforcing the law.
Unlike previous surveys of packs in personal possession,14 ,17 ,19 our study prompted smokers to show all open cigarette packs. We found that some smokers have taxed and non-taxed packs in their possession. This should be taken into account in further studies of packs in personal possession.
The estimate of cigarette tax avoidance/evasion from the industry-commissioned study is higher than our estimate based on discarded pack collection by nearly half. The reason for this difference is not known, since the industry is reluctant to disclose the details of their method. Some of the difference between our estimates and those produced by the industry-commissioned studies might result from the inability of our method to detect counterfeit cigarettes. However, the problem of cigarette counterfeiting in Poland is relatively minor (industry studies estimate that 1.9% of cigarettes in Poland are counterfeit 25). The industry-commissioned study has also collected data from packs found in public bins. However, Merriman found that the share of non-taxed packs among those that are legally discarded is not different from the share among the packs found on the streets.16 This suggests that our measures of prevalence of packs not intended for the domestic market based on the discarded packs method are comparable with the industry measure, and the observed discrepancy between our estimate and the estimate from the industry-commissioned study might result from the industry misuse of their method, as found in Germany.21
The tobacco industry has been very effective in disseminating its messages about the size of the illicit cigarette markets and its proposed solutions for their elimination. In Poland alone, there have been at least four corporate social responsibility campaigns focusing on illicit cigarette trade since 2010.31 These campaigns used the estimates from the industry-sponsored studies 32 ,33 and involved presentations on TV, in the press and on billboards, as well as the distribution of over a million leaflets to the public. The information was disseminated directly at schools and Catholic parishes, and the industry even organised workshops for customs officers.31 Additionally, since the industry estimates have been used by market intelligence firms,34 these inflated figures have been disseminated to other important stakeholders and repeated in many market analyses.
A government's reliance on the tobacco industry estimates of tobacco tax avoidance and evasion involves many risks. If governments are presented with such estimates, they should strictly require the industry to publically disclose all methodological details and data. Governments should also seek advice from independent experts on any matters introducing such conflict of interest.
What this paper adds
This is the first rigorous comparison of industry-funded and academic estimates of illicit cigarette trade.
Two methods used in the academic study yielded similar estimates of the prevalence of cigarette tax avoidance and evasion.
Compared with the academic estimates, the industry-funded study overestimated the size of cigarette tax avoidance and evasion by at least 47%.
We are grateful to Christina Ciecierski for her help with the questionnaire design and project management, and to David Merriman for his help with sampling. We would also like to thank Aleksandra Żero who managed the discarded pack collection, Tomasz Barczyk for his help with data processing, Deborah Driscoll for her comments on the surveys’ methodology, as well as John Daniel and Alex Liber for editing assistance.
Review history and Supplementary material
Contributors Both authors contributed to the entire manuscript.
Funding The study was funded by the American Cancer Society (Contract #10965).
Competing interests None.
Ethics approval Ethics approval was provided by the Northeastern Illinois University Institutional Review Board (project #10965).
Provenance and peer review Not commissioned; externally peer reviewed.
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