Black Market Cigarettes Account for 30 percent of the total

More than 360 brands of cigarettes are available on the illegal market in Brazil, six times the number of legally sold brands, complains the company Souza Cruz, British American Tobacco's subsidiary in Brazil.

The company, which controls three-fourths of the formal market for cigarettes in this country of nearly 180 million people, also reports that 30 percent of the 131 billion cigarettes smoked in Brazil in 2003 were the product of illegal practices -- piracy, contraband, or tax evasion.

That means nearly 40 billion cigarettes smoked last year were sold on the black market, compared to 91 billion sold legally.

The figures provided by the company are similar to the official statistics.

Contraband from Paraguay is the main source of the informal trade in cigarettes, fuelled by the heavy taxes on the cigarettes produced in Brazil, which represent 70 percent of the retail price.

By evading taxes, a broad network of street vendors is able to offer even leading national brands at half the price they fetch in the stores.

A pack of cigarettes sold on the formal market last year for an average of 1.70 reals (57 cents of a dollar), against 0.89 reals (30 cents) on the black market, according to Souza Cruz.

The government's lost tax revenues on cigarettes are estimated at 1.4 billion reals (500 million dollars) a year -- which makes cracking down on contraband cigarettes a priority for police and tax authorities.

Paulo Campos, one of the thousands of ”shopping tourists” and black marketeers who make a living buying cheap products across the border in Paraguay and reselling them at higher prices in Brazil's large cities, says he has felt the stepped-up controls.

The bus in which he has travelled every week to Ciudad del Este, a Paraguayan border town, for the past 14 years has been stopped for inspections several times by the police and agents with the Secretariat of Federal Revenue, Brazil's tax authority.

But ”our purchases were only confiscated twice,” Campos told IPS. On other occasions, nothing was seized when the passengers' suitcases and baggage were inspected by agents ”who made it clear that they were only looking for cigarettes, drugs or weapons,” he added.

In the bus, in which Campos and 24 fellow ”informal importers” regularly travel to Ciudad del Este, there is a strict rule: no cigarettes, ever.

That way they are allowed to bring in their home appliances, computer goods, toys and other merchandise, generally made in Asia, with which the market of Belo Horizonte, the capital of the southern state of Minas Gerais, is supplied.

The contraband bolsters industry in Paraguay, where there were only three cigarette factories in 1993 compared to 42 today, according to Souza Cruz.

Before 1993, there were price controls in Brazil, and cigarettes sold at low prices on the formal market, so there was very little competition from contraband cigarettes.

Today, Paraguay's production capacity is many times greater than domestic demand for cigarettes, and a large surplus goes towards legal and illegal exports.

In Paraguay, taxes account for between 13 and 16 percent of the retail price of cigarettes, according to marketing studies, compared to 70 percent in Brazil.

The gap in the tax burden gives Paraguay a major advantage in exporting cigarettes to Brazil legally. However, most of the cigarettes enter this country as contraband.

Thousands of residents of Foz de Iguazú, the Brazilian city that is joined toCiudad del Este by a bridge, earn their own small incomes working as ”laranjas” (oranges) -- those who cross the border carrying the products bought by the Brazilian buyers. Cigarettes are one of the main items they transport.

Cigarettes made in Brazil are also found on the black market, which they reach through different routes. One is highway theft, involving hijackings and hold-ups of trucks, which have become frequent in Brazil. Lightweight and easy to sell, cigarettes are one of the favourite targets of highway thieves.

Another source of illegal cigarettes is fake exports, a phenomenon that is easier for law enforcement agents to control. For a time, Paraguay figured on the charts as a major importer of Brazilian cigarettes that never actually crossed the border but were sold within Brazil.

The fake export transactions were aimed at getting around Brazil's heavy taxes.

Fighting contraband is one of the commitments established in the anti-tobacco treaty approved last year by the World Health Organisation (WHO).

The Brazilian Congress has not yet ratified the treaty, even though this country was one of its main sponsors.

The international agreement also recommends a ban on cigarette advertising, and other measures to curb smoking, such as price and tax hikes.

But Souza Cruz argues that such measures merely favour contraband and illegal trade.

According to that argument, higher taxes encourage tax evasion, and without advertising, there is no way to inform consumers about government-approved brands, to help distinguish them from the smuggled or counterfeit brands, which are produced with lower-quality tobacco and with less strict quality controls, or none at all.

[Fuente: by Mario Osava, IPS, Terraviva Europe, Rio de Janeiro, 08Sep`04]

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