Illicit Trade in Manufactured Cigarettes and Hand-Rolled Tobacco In North Macedonia

Abstract

The World Health Organization Framework Convention on Tobacco Control (WHO FCTC) Protocol to Eliminate Illicit Trade in Tobacco Products (WHO, 2013)1 defines illicit trade in tobacco very broadly. A key part of illicit trade in tobacco is the illegal methods consumers use to circumvent tobacco taxes, which is defined as tax evasion. On the other hand, tax avoidance encompasses the legal ways consumers manage to pay lower prices by avoiding paying taxes. Tax evasion and tax avoidance undermine a country’s tobacco taxation and health policy efforts as they decrease tax revenues and undermine health, since the required health warnings and declarations of ingredients are usually absent on illegal products (Joossens et al., 2010).2 As prior independent estimates of tobacco tax evasion in North Macedonia were not available, Analytica conducted a study using novel data from the Survey on Tobacco Consumption in Southeastern European countries (STC-SEE). The survey was conducted for the first time in 2019 in six SEE countries: Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia.3 Based on the survey data, the size and characteristics of tax evasion in manufactured cigarettes (MC) and hand-rolled cigarettes (HR) are estimated, followed by an empirical evaluation of possible factors affecting smokers’ probability of evading taxes. Hence, this study brings forward several key messages and policy recommendations for policy makers in North Macedonia.