HUP and Customs Administration: If they knew under what conditions illegal tobacco products are produced, they would not consume them

Entering Schengen is an extremely positive thing for Croatia as it opens additional opportunities for everyone in the economy, but entering a space without internal borders presents an additional challenge in the context of combating illegal trade in excise goods, especially tobacco products, is the conclusion of the panel discussion ‘Illegal Trade in Tobacco Products – What Does Schengen Bring Us?’ organized today by HUP and the Customs Administration. Alongside representatives from HUP and the Customs Administration, Bojan Vodopivec from the Financial Administration of Slovenia and Lt. Col. Róbert Schöninger Dr. from the National Tax and Customs Administration (NTCA) of Hungary shared their experiences in combating illegal flows, both confirming the increased pressure of such products on the external borders of Schengen.

Croatia has done a lot to combat illegal trade in tobacco products, and some of the most important measures include the introduction of a traceability and monitoring system for tobacco products, increased oversight that has resulted in a rise in seizures, as well as a reduction in the amount of allowed tobacco product imports from non-EU countries. The Customs Administration emphasized that Croatia has recorded a trend of declining consumption of illegal tobacco products over the past five years, which is contrary to the global trend of increasing consumption of these products.

Less Smuggling

– The negative consequences of these illegal activities are not only in the loss of revenue, or financial nature, but also pose a high risk to consumer health as such products often do not comply with labeling regulations or health safety regulations. By monitoring and analyzing the manifestations of illegal activities, based on available data and collected information, in cooperation with neighboring and other EU member states and institutions, national institutions, and even with the industry, efforts are continuously directed at all possible critical points, primarily to prevent, and then, through more successful detection and larger seizures, to mitigate the harmful consequences of these forms of illegal activities.

For example, in 2021, the Customs Administration seized more than 18 million different brands and types of cigarettes, as well as over 90 tons of tobacco products (cut tobacco, leaf tobacco, tobacco for hookahs), and in 2022, more than 3.5 million cigarettes and 72 tons of tobacco. From the trends we monitor, it is evident that there has been a strong intensity in combating cigarette smuggling over the past five years, resulting in reducing this form of smuggling to the lowest historical levels since the independence of Croatia.

– In terms of tobacco (tobacco raw materials and fine-cut tobacco), significant contractions of the illegal market are also recorded, which we believe has been largely contributed to by targeted and focused operational work of the customs and police services, as well as a modern regulatory framework that has introduced repressive instruments against all forms of smuggling.

In addition, the detection activities of the customs service at the external borders of the EU have been significantly intensified, which should be viewed as preparation for Croatia’s entry into the Schengen area, which, among other things, requires a strong engagement of supervisory bodies in response to the changed regulatory framework, said Mario Demirović, Director of the Customs Administration, Ministry of Finance of Croatia.

In the EU, there is an increase in the consumption of illegal cigarettes, while in Croatia this share continues to decline, reducing to six percent, according to KPMG’s report on the consumption of illegal cigarettes in the EU. However, we still have a relatively high share of cut tobacco that enters the market without paying excise duties and taxes in Croatia, as shown by IPSOS research, which is why continuous efforts to combat illegal flows are important.

– We have a lot of data, but I can say that the successes we have followed through the media since 2015, after customs changed its laws, exist due to a series of very demanding criminal investigations. They last a minimum of nine months and require enormous resources. When we present our research proposals to USKOK, not a single case has ever been rejected.

If those who smoke these illegal products saw where they are produced, they would probably never consume them. These are barns, basements, and warehouses, all done in very unhygienic conditions, said Mario Marković from the Criminal Police Administration of Croatia.

‘We See Positive Effects of Entering Schengen’

HUP welcomed the improving results in the fight against illegal trade in tobacco products in Croatia and the trend of declining consumption of illegal tobacco products. They emphasized that it is crucial to continue advancing the domestic regulatory environment, which must take into account the fact that we border countries where tobacco product prices are significantly lower, meaning there is a continuous incentive for establishing illegal flows into Croatia, and after Croatia’s entry into Schengen, through Croatia to the rest of the EU market.

– At HUP, we see pronounced positive effects of entering Schengen, but we must also be aware that this will pose an additional challenge for state institutions in controlling illegal flows, and there is certainly still a problem of the illegal tobacco market in Croatia, where we are making progress, but it is still present.

The high level of illegal tobacco products is not only a problem for the industry and traders but also carries significant economic and social implications. Joining a common border area brings new challenges such as changes in the way illegal products are sold and delivered, but as a member of Schengen, we must be very active in the process of adopting new regulations such as the new Directive on the taxation of tobacco products.

Namely, any sudden significant increase in minimum excise duties on these products in Croatia could seriously affect the increase in illegal trade, given that we border countries with significantly lower tobacco product prices. To preserve all the good that has been done in this area so far, we must be cautious in ensuring a quality regulatory environment, said Irena Weber, Director General of the Croatian Employers’ Association.