Suggestion 1: Adopt a two-pronged approach – increased inspections and enhanced public awareness – to deal with new types of illicit trade in tobacco products.
In recent years, following increases in the tobacco product excise tax to help support the government’s long-term-care policy and in anticipation of the coming revision of the Tobacco Hazards Prevention and Control Act (THPCA), smugglers have been expanding their operations by concealing tobacco products in cargo containers and on fishing vessels. The damage to Taiwan’s legal tobacco-product market has been enormous. Although the Ministry of Finance (MOF) has invited inspection-related agencies like Customs and the police to formulate an “Illicit Tobacco Products Inspection Enhancement Plan” with a view to strengthening border inspection and enhancing cross-agency communication, the number of packs of illicit cigarettes uncovered in Taiwan in January this year alone reached a high 1.81 million. Compared to the 830,000 packs found during the same period last year, the increase came to a staggering 118%. Based on these figures, it can be assumed that a substantial number of additional illicit tobacco products must have eluded seizure and entered the market.
In the past, most of the illicit tobacco products in the Taiwan market were “cheap whites” or low-quality cigarettes produced domestically by underground factories. However, most of the illicit tobacco items discovered during the past year have been genuine Chinese brands. Based on MOF statistics, 80% of the major illicit tobacco products were made in China, whereas cheap whites accounted for only 20%. Factors such as the COVID-19 pandemic and the revamping of supply chains have gradually caused new types of illicit trade to evolve. At least three operations of illicit branded China-made tobacco products have been uncovered since last year, each having a value of more than hundreds of million NT dollars. Their entry into the market would certainly cause over millions of NT dollars in lost tax revenue. Health concerns are even more compelling. Because their manufacturing process is unregulated by normal health regulations and inspections, illicit tobacco products may contain unknown ingredients or continue to be sold past their shelf lives, causing consumers to be exposed to high health risks.
Close cooperation between the government and industry is the best way to enhance regulatory efficiency. To combat the problem of illicit trade in tobacco products, the authorities should combine private businesses’ know-how and resources with the government’s access to data, thus strengthening the ability to stay abreast of market changes and undertake effective promotional campaigns. We also urge the authorities to gather comprehensive industry opinion as part of the process of formulating regulatory policies.
Raise public awareness concerning the seriousness of the illicit trade in tobacco products and utilize various channels to call upon citizens to refrain from buying unreasonably priced tobacco products or those of unknown origin.
Tighten inspection procedures and adopt related supporting measures to crack down on the illicit trade – both large, local illicit cigarette factories and imports from China.
Suggestion 2: Construct a reasonable tobacco control policy to combat illicit trade.
A transparent, reasonable, and predictable regulatory policy on tobacco products is needed not only to protect the legal industry from harm from illicit products but also to help the government reach its public health and fiscal policy goals. Only when the authorities give fair consideration to a wide range of opinions, coordinate well with one another, and regulate the industry by reasonable standards can problems confronting the tobacco industry in Taiwan be truly resolved.
The Health Promotion Administration (HPA) of the Ministry of Health and Welfare (MOHW) pre-announced an amendment to the THPCA on May 29, 2020. The public consultation period ended on July 28 of the same year. During this period, a total of 9,872 public comments were submitted, but the fate of these nearly 10,000 comments is unknown except to the authorities. Although the industry has repeatedly used various public forums and other opportunities to remind MOHW of the importance of maintaining transparency, MOHW has insisted that public hearings are not needed because it already has a multitude of public communication channels. In other words, these 9,872 comments have been rendered meaningless. This decision not only is contrary to the democratic process in which Taiwan takes pride but mars Taiwan’s reputation as a beacon of democracy in Asia.
Based on international experience, overly austere tobacco control measures invariably lead to an increase in the volume of illicit tobacco products in the market. If the Taiwan government hastily implements the THPCA amendment, the problem of illicit trade in Taiwan will certainly worsen. The serious tax-revenue loss could well impact the financial stability of Taiwan’s social-welfare system.
Provide tobacco products with treatment equal to that of other legal products.
Respect the rights of consumers to have different product choices, in particular the various forms of emerging tobacco products. Also, respect the outcomes of international studies and empirical evidence.
Hold public hearings prior to reviewing the proposed tobacco bill, and invite industry, government, and academic stakeholders to a transparent and open forum where they can freely express their respective viewpoints.
Comprehensively consider whether the currently proposed policies can achieve the intended goals in terms of national public health, such as reducing the incidence of smoking, and carefully evaluate the question of illicit trade and its impact on the overall legal supply chain.