Illicit Cigarette Trade in Lao PDR evidence from

Illicit Cigarette Trade in Lao PDR evidence from NIH Wave 1 research By Xaignasack LASSACHACK This project is collaborative project between SEATCA, Duke University and American Cancer Society, supported in part by Grant Number RO 1 TW 007924 from the Fogarty International Center (FIC) and National Cancer Institute (NCI) at the U. S. National Institute of Health.

How Tobacco Illicit Trade is calculated in (Lao PDR) • Method 1: Analysis of cigarette tax avoidance • Method 2: Analysis of trade discrepancy

Method 1: Analysis of cigarette tax avoidance The analysis of the difference between survey reported consumption and legal cigarette sales (tax paid sales). Illicit trade = (Cigarette expenditure + under-reporting) - legal cigarette sales

Result of Method 1 No underreporting: • There was illicit trade out of Lao PDR. It is about 8. 5 billions Kip or 4% of official tobacco sale (in 2002). • There is smuggling into Laos. It is about 34 billions Kip or 8. 8% of official tobacco sale (in 2007). Underreporting: 5%, 10%, and 15% • Smuggling out disappeared (in all year). • Net smuggling in was higher (within the range 34 – 98 billion Kip.

Possible reasons that explain the finding; • The data available were limited and required some strong assumption. • There is smuggling in/out in the case of Laos. • Smuggling in/out would affect government income generated from tax. • Without such cigarette smuggling, the government would have substantial further funds available for development of the country.

Method 2: Analysis of trade discrepancy The assessment of disparities between exporting country recorded and Laos country recorded Smuggling = Recorded export to Laos – recorded into Laos

Result of Method 2 • We collect data of cigarette 13 trading partners (Table 9). • The results suggest that there was smuggling in increase from 2006 to 2007. • As percentage of total domestic sale, cigarette smuggling increased from 0. 08% - 6. 32%. • It is similar to the estimate of 8. 8% from Method 1.

Estimation of smuggling using method 2 • Discrepancy may be due to other causes such as: - Ineffective recording system in Laos; - Failure to report the exact amount of cigarette imported into Laos; - Errors in commodity classification; - Time lags between export and the receipt of imports; - Misallocation of imports by country and overinvoicing of exports.

Figure of tobacco Taxation, consumption and smuggling • Tax rate is range 15% – 30% (Due to 25 years ILA). • We use 93. 13% cigarette user (Data available only 2003 Lao Health Survey). • We use the lowest price about 3, 000 Kip/pack for this study. • We assume sensitive analysis (underreporting 5, 10, 15 percent).

Figure of Revenue loss from tax avoidance • We used a range of tax rates (15% to 30%). • Government revenue losses range from 0. 01 to 0. 52% of total tax revenue. • Smuggling represents only 34, 358 - 98, 020 million Kip (3. 6 – 10. 2 million US$). • The result shows that an estimated tax revenue loss 5. 2 – 29. 4 billion Kip (0. 09 – 0. 52% of total tax revenue).

Policy implication • Government should have significant implications for - Monitoring; - Evaluating taxation policies. • Government should improve policies towards effectively tobacco control. • Serious effective campaigns aimed at reducing tobacco consumption are needed. • Cooperation between Laos and neighboring countries has improved.