Oxford Economics developed an Illicit Trade (IT) Flows Model to estimate the size of Illicit Consumption and trade flows in selected Asian markets. A detailed methodology and glossary of terms can be downloaded via the link below, a summary of which is provided below:

  • To measure Legal Domestic Sales, our preference was to use official statistics on duty-paid sales, subject to availability. If official data was not available, we used In-Market Sales (IMS) data provided by the industry.

  • Legal Domestic Consumption was subsequently calculated by adjusting Legal Domestic Sales data for Outflows of legal cigarettes based on analysis of Empty Pack Surveys and consumer research in other markets.

  • The incidence and volume of Non-Domestic Inflows were primarily estimated using Empty Pack Surveys. Empty Pack Surveys provide an estimate of the share of non-domestic cigarettes in Total Consumption. Legal Domestic Consumption is scaled up by this non-domestic share, leading to an estimate of the volume of Non-Domestic Inflows and hence Total Consumption.

  • Empty Pack Surveys also provide a breakdown of the Inflows by Market Variant so that they can be matched against the Outflows data (see above). The IT Flows Model is “iterated” to ensure consistency between Inflows and Outflows by market, leading to refinement of the estimates of incidence and volume of Inflows.

  • The volume of Non-Domestic Legal cigarettes entering each market is estimated separately by calculating the “theoretical maximum volume of legal Duty-Free Inflows of cigarettes” from the rest of the world. This is based on tourism data on passengers flows (inbound and outbound), Smoking Prevalence and population data, and the prevailing passenger duty-free personal import allowance in each market under consideration.

  • The volume of Non-Domestic Illicit Inflows (i.e., Counterfeit, Contraband, and Non-Domestic Illicit with Unspecified Market Variant) is subsequently calculated by subtracting this estimate of Non-Domestic Legal Inflows from total Non-Domestic Inflows.

  • In addition, Consumer Survey data were used to incorporate estimates of illicit Inflows of loose tobacco in Australia and New Zealand.

  • Domestic Illicit Consumption is identified primarily through the use of retail audits and academic research where relevant.

  • Finally, the Tax Loss associated with Illicit Consumption in each market was calculated using the data on market prices, and the prevailing average tax rates and structures for 2017. The Report focuses on the impact of indirect taxation only.

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