Estimating cigarette tax avoidance and evasion: evidence from a national sample of littered packs

Abstract

IntroductionA number of recent studies document the proportion of all cigarette packs that are ‘contraband’ using discarded packs to measure tax avoidance and evasion, which we call tax non-compliance. To date, academic studies using discarded packs focused on relatively small geographical areas such as a city or a neighbourhood.MethodsWe visited 160 communities across 38 US states in 2012 and collected data from littered cigarette packs as part of the State and Community Tobacco Control (SCTC) Research Initiative and the Bridging the Gap Community Obesity Measures Project (BTG-COMP). Data collectors were trained in a previously tested littered pack data collection protocol.ResultsField teams collected 2116 packs with cellophane across 132 communities. We estimate a national tax non-compliance rate of 18.5% with considerable variation across regions. Suburban areas had lower non-compliance than urban areas as well as areas with high and low median household income areas compared with middle income areas.DiscussionWe present the first academic national study of tax non-compliance using littered cigarette packs. We demonstrate the feasibility of meaningful large-scale data collection using this methodology and document considerable variation in tax non-compliance across areas, suggesting that both policy differences and geography may be important in control of illicit tobacco use. Given the geography of open borders among countries with varying tax rates, this simple methodology may be appropriate to estimate tax non-compliance in countries that use tax stamps or other pack markings, such as health warnings.

Limited indications of tax stamp discordance and counterfeiting on cigarette packs purchased in tobacco retailers, 97 counties, USA, 2012

“…When no attempt is made to purchase untaxed or counterfeit cigarettes, the vast majority of standard tobacco retailers appear to be selling properly taxed cigarette packs that do not show indications of product counterfeiting. Our national results contrast sharply with cigarette pack litter studies from high tax jurisdictions ( Davis et al, 2014 , Consroe et al, 2016 , Merriman, 2010 , Chernick and Merriman, 2013 ); a national cigarette pack litter study, which found 18.5% of packs indicated tax avoidance or tax evasion ( Barker et al, 2016 ); and, from a national pack mail-in study ( Fix et al, 2014 ), which found that state tax stamps did not match with the participants' state of residence for 20% of 686 packs mailed in by participants in the International Tobacco Control United States Survey. Our results suggest each of these may be picking up legal consumer tax avoidance behavior as well as smuggling, as well as possible purchase from illicit sources (e.g., individual sales) ( Fix et al, 2014 ).…”

“…The NAM report and other studies, however, suggest substantial regional variation, with higher rates of illicit cigarettes in high-tax jurisdictions ( Reuter and Majmundar, 2015 , Barker et al, 2016 , Fix et al, 2014 ), a pattern that we did not observe. Our study does not assess non - retail purchases (e.g., Internet, street corner) of untaxed or counterfeit cigarettes, nor does it assess purposeful attempts to buy untaxed or counterfeit cigarettes at retailers.…”

“…Nationally, lower but still substantial rates of untaxed cigarettes are found ( Barker et al, 2016 ). In 2009–2010, approximately 20% of cigarette packs collected from participants by mail in the International Tobacco Control United States Survey did not have tax stamps matching the residence of the participant ( Fix et al, 2014 ).…”

Tobacco industry data on illicit tobacco trade: a systematic review of existing assessments

“…However, the methodologies identified by the assessments can and have been used effectively by multiple non-industry sources. For example, EPS have been the focus of several well-executed measurements of tax avoidance and evasion by independent researchers8–10; much of what is known about adult users of illicit tobacco is based on self-reported information collected through both large population and localised surveys3; econometric modelling has been used extensively to measure ITT, primarily in the USA, for decades3 and a tax gap approach is currently used by the UK government to estimate levels of ITT 11–15…”

Dataset on discarded cigarette packs in Mongolia

“…Collecting discarded cigarette packs has been used predominantly in the United States as a method to measure illicit trade [1], [2], [3], [4]. However, there are incidences of studies being done in low- and middle-income countries (LMICs), specifically Poland [5] and South Africa [6].…”