Illicit tobacco remains a significant problem afflicting Hong Kong, with more than one in every four cigarettes consumed in 2014 being illicit. Illicit cigarettes cost the Government HK$2.5 billion in lost tax revenues.
The Asia-16: Illicit Tobacco Indicator 2014 (“Asia-16”) study, conducted by Oxford Economics, found that 28.0% of cigarettes consumed in Hong Kong in 2014 were illicit, a 5.6% point drop compared to 2013.
Intensified law enforcement efforts are believed to have led to a notable decline in Hong Kong’s illicit tobacco consumption, bringing it to the lowest level since the Illicit Trade Indicator first reported figures for 2012. However, illicit tobacco remains a serious problem in Hong Kong.
“Hong Kong still has significant problem with illicit cigarettes, driven in part by the substantial retail price gaps with neighboring countries that were exacerbated by tax hikes in 2009 and 2011”, said Adrian Cooper, Chief Executive Officer of Oxford Economics. “The consumption of illicit cigarettes has effectively wiped out tax revenues that could have covered more than two months’ rentals for 750,000 public housing tenants in Hong Kong.”
“Clearly, Hong Kong’s serious illicit tobacco problem is dominated by cross-border organized crime groups that use the proceeds to finance numerous other criminal activities”, said Jeff Herbert, former Senior Superintendent with the Hong Kong Police and Advisor of the Hong Kong United Against Illicit Trade (HKUAIT). “Hong Kong still needs to get a lot tougher with such organized crime syndicates.”
Mr. Herbert refers to the Organized and Serious Crimes Ordinance as an effective tool to seek heavier penalties, freeze the assets of organized criminals, and confiscate their crime proceeds.
In addition, Mr. Herbert believes that a robust public education campaign is also key to tackling Hong Kong’s illicit tobacco problem. “The recent anti-illicit trade TV campaign run by the Customs is a good start, and I look forward to seeing more in the coming months”, continued Mr. Herbert.
Mr. Herbert urges the Government to introduce a balanced excise policy with regular but moderate tax increases in pace with inflation, and cautions against excessive tax and regulations such as 85% health warning labels that may risk fueling the illicit trade and defeat the significant enforcement efforts.
“The elimination of illicit tobacco and of the smuggling groups and syndicates must take place first,” added Mr. Herbert.