Malta – Steady Does It

Malta is showing the world how to address the complex problem of illicit tobacco – ie. by adopting a steady and consistent approach.

KPMG, in its annual 2020 report on illicit cigarette consumption in the EU, UK, Norway and Switzerland, reports that not only has total cigarette consumption continued to decline in Malta, but most importantly, the market share of illicit cigarettes has continuously decreased.

The data shows that illicit trade in Malta has experienced a steady decline since 2016. The market share of the illicit cigarette trade in 2020 in Malta declined to 6.4% from 17.2% in 2016, which is a remarkable success.

I wanted to look at what the ‘secret of success’ has been in Malta. And as it turns out, it has been the result of steady, consistent, and comprehensive taxation and enforcement policy.

Illicit markets thrive on change, and they also thrive on drastic disparities, especially sudden disparities. As shown in our article on Australia in this issue (see page 6), the drastic increase in tobacco taxes in Australia effectively more than doubled the price of cigarettes over the span of a few years.

Malta, in comparison, has had a steady taxation environment. While Malta’s overall taxation is still high, with 77% of the retail price being attributed to taxes, the tax increase had been gradual over many years and has been in synch with taxation in neighboring countries, minimizing the incentive for smuggling.

Malta’s limited geography also provides less of an opportunity for criminal networks to establish growing or production facilities of any significant scope.

But most importantly, Malta has implemented a robust and comprehensive customs and border protection enforcement program against illicit tobacco.

I had the pleasure of having Marisa Hewer of Malta Customs on my panel at the Tax Stamp Forum™ in 2018. During our discussion Ms Hewer highlighted the key elements of Malta’s enforcement strategy: 

1. Robust data collection to identify illicit trade issues early, including any appearance of illicit whites, increased smuggling or counterfeit.

2. Implementation of a robust, comprehensive, and integrated tax stamp technology and continuous improvement of such a platform, with the goal to implement a comprehensive FCTC compliant track and trace system.

3. Comprehensive enforcement with robust penalties. Malta had implemented drastic increases in penalties and fines to make them commensurate with the crime.

The combination of strong data systems, solid tax stamp systems and a comprehensive enforcement regime with meaningful penalties, has resulted in a continued decline in illicit tobacco trade in Malta. While in today’s world the attention often is drawn to innovative new technologies, perceived ‘silver bullets’ or trendy new enforcement techniques, Malta has shown us that ‘steady does it’.