Focus on Kenya: Wiping out illicit trade
Last year in April, reports in local dailies indicated African countries lose Sh1trillion annually to illicit tobacco trade, often driven by cigarette manufacturers in a bid to evade taxation. This denies governments much-needed revenue from taxation, while at the same time, increasing supply (access) and affordability, hence, defeating public health goals.
Studies show if global illicit trade is eliminated, governments would gain at least $31 billion (Sh3.1 trillion) and from 2010 onwards, would save at least 160,000 lives a year due to a projected cigarette price increase of 3.9 per cent and consequent fall in consumption of two per cent.
Illicit trade of tobacco undermines health objectives, imposes additional strain on health systems, causes losses of revenue to a country’s economy and can lead to criminal activities and insecurity. Illicit trade in tobacco products leads to decrease in tax compliance and effectiveness, and leads to undermining tax systems.
In Kenya, between 2000 and 2010, 37.4 million diverted cigarette exports were intercepted by KRA, with a value of Sh 174 million and estimated tax loss of Sh111 million. Illicit trade is often a cross-border act, especially where there are tax and price differentials between two countries.
‘Illicit trade’ is the production, import, export, distribution, purchase, sale or possession of a product that fails to comply with the law. There are several dimensions to this: First is contraband, where cigarettes are smuggled from abroad without payment of domestic duty (undeclared or under-declared imports). Under and undeclared products may also originate from the local market.
Second is counterfeit, where tobacco products are manufactured without authorisation, with intent to deceive consumers and avoid paying duty.
Third is a diverted export, in which domestic production declared as export never leaves the country
Kenya has taken strong measures to control this illicit trade and has become a global leader through the adoption of a strong Excisable Goods Management System. It uses technology to track and trace tobacco products, and provides a platform for verification of the authenticity of products by enforcement agencies and the public.
Cigarettes targeted for the Kenyan market must bear tax stamps and be marked ‘For sale in Kenya only’ or they will be seized. Vehicles transporting tobacco products for export are sealed at the factory and tracked electronically until they reach the border. Export products must also bear bar codes indicating the market they are destined for. Through these measures and strong market surveillance, Kenya has managed to reduce illicit trade in tobacco significantly.
The objective of the ITP is to eliminate all forms of this illicit trade in line with Article 15 of the WHO FCTC. Besides providing for an effective and standard track and trace system, the protocol provides for inter-country cooperation and a global mechanism for sharing of sensitive information for effective control of illicit products.
In accordance with the FCTC (Article 44 ), the ITP will enter into force and become binding on the 90th day following the 40th ratification by parties to the FCTC. As of February 1, Togo became the 34th country to ratify and so far, only six more countries are needed. Thereafter, parties will begin formal engagements and the first Meeting of Parties will be held shortly afterwards.
Despite the great work Kenya has done so far, we risk missing out on these important global deliberations if we do not ratify in time. Ratification of the treaty will form a basis for stronger policy and legislative framework for the control of this illicit trade in this country.
Further, it will give Kenya a voice in the global discussions as the world begins setting the foundation for the implementation of the ITP. It will complement the government’s efforts and enable Kenya to retain her place in the global tobacco control movement in general and specifically in control of illicit trade of tobacco.
The new Health and Foreign Affairs CSs Sicily Kariuki and Monica Juma ought to prioritise and fast-track the ratification process for the treaty.
- Emma Wanyonyi is the CEO, International Institute for Legislative Affairs and Rodgers Kidiya is the programme officer, Research and Development.
* This article first appeared in The Star in Kenya. To view the original article, click here.