Cigarette Tax Efficiency: A New Opportunity for Ecuador

In April this year, President Noboa of Ecuador, who has positioned himself and his administration as focused on law and order, was re-elected with over 55% of the popular vote. His stance on fighting corruption and drug- related violence might prove fertile ground for a more efficient fight against other criminal activity such as the rise in contraband cigarettes. Months before the election, a congressional justice committee highlighted the importance of tobacco traceability in a draft bill against illicit trade but, so far, the regulations established in late 2021 remain in force.

The recent past

Ecuador’s tax authority, SRI (Sistema de Rentas Internas), has a decade-long history of using modern tax stamp and traceability systems. Until late 2021, SRI employed two different systems: SIGVEF, used by the national customs authority for imported alcoholic beverages, and SIMAR, directly under SRI’s control, for locally produced cigarettes, spirits, and beer.

For tobacco products, the SIMAR system was introduced at a time when the tobacco industry business model in Ecuador was migrating from almost exclusive local production to fully imported cigarettes, thereby effectively ending local manufacturing in the country. In any case, SIMAR met with significant complaints from the tobacco industry, who insisted it would cause higher cigarette prices for the public without really addressing the contraband issue.