Suprunova A.A.

Scientific supervisor: Usikov V.A.

Donetsk national university of economics and trade

named after Mukhaylo Tugan-Baranovsky, Ukraine

FIGHTING CONTRABAND

One of the main tasks of the State Customs Service is fighting with smuggling, implementation of measures in order to prevent violation of customs regulations. Smuggling remains one of the most difficult problems that Customs has to face with.

As soon as the deficit arises in the country or there is a substantial divergence in prices, we can see the movement in the „needed direction". Because of the Geographical position of Ukraine a lot of goods are transported through its borders. As a consequence, there are many smuggling incidents. Large-scale smuggling generally takes advantage of the "in transit" system that has been developed to facilitate international trade. This system allows for the temporary suspension of custom duties, excise taxes, and VATs payable on goods originating from and/or destined for a third country while in transit across the territory of another country. However, in countries with poor control over the in-transit cigarettes, substantial leakages take place, with many of the exported cigarettes failing to arrive at their intended destination.

Since smuggling is an illegal activity, it is very difficult to get an accurate estimate of its level and its impact on revenues. Estimates of the amount of annual budget loss caused by smuggling vary from 100 million UAH to up to 200 million US dollars (1 billion UAH).

It has been argued, often by the tobacco industry, that higher cigarette taxes will not have the intended effect of raising revenues and discouraging cigarette consumption.

The assortment of contraband commodity is dictated by time. In connection with the considerable difference in prices tobacco products remain one of the most widespread articles of contraband goods. In 2000-2003, the smuggling of international brands to Ukraine was the main kind of smuggling. Due to rather strict law enforcement and low excise taxes for filter cigarettes in Ukraine, the incentives to produce international brands in Ukraine instead of selling them to smugglers have increased.

The tobacco industry can benefit from smuggling in several ways. The illegal trade is very profitable because the companies are paid for cigarettes eventually smuggled. The availability of low-priced cigarettes via smuggling raises the overall consumption of cigarettes compared to consumption in the absence of smuggling, adding to the tobacco very industry sales. During recent years Ukraine experienced expansion of the transnational tobacco companies (TTC). Foreign investors established joint ventures with six of the eleven cigarette factories operating in Ukraine.

While cigarette smuggling and the crime that accompanies it can cause significant problems, the government does not need forego cigarette tax increase because of fears over them. Instead, the appropriate response to smuggling is to adopt policies that make it less profitable, more difficult, and more costly to engage in smuggling. While cigarette smuggling in Ukraine is a serious problem and tax increases can lead to an increase in smuggling, the scale of the problem has been significantly overstated, particularly when it comes to the impact of smuggling on changes in cigarette smoking and tax revenues. The introduction of big health warnings in Ukrainian on cigarette packs (at least 35% of the largest surface). They will clearly show that a pack was produced for the Ukrainian market and make the legality of cigarette packs more immediately visible for consumers and law enforcers.

The international and Ukrainian experiences clearly indicate that increases in tobacco taxes will lead to a reduction of smoking and increases its tax revenues, even when they are accompanied by increases in cigarette smuggling, while reductions in taxes that are aimed at reducing the smuggling problem will lead to reduction in tax revenues and increase in smoking.

The smuggling of cigarettes produced in Ukraine to Western and Central European countries, while gives some benefits to the Ukrainian budget, creates political problems and spoils the international image of Ukraine.

Ukraine is used for the transit of smuggled cigarettes both legally to high-risk smuggling countries, and illegally, such as smuggling cigarettes back to the country of their production. Cooperation with custom authorities at least with neighboring countries and comparing the quantities of exported and imported cigarettes between the two countries as well as informing each other about suspicious transit of cigarettes.

To decrease the smuggling of cigarettes produced in Ukraine, manufacturers could be required to stamp each pack of cigarettes with a serial number to enable tracking. With increasingly sophisticated technology, pack marking could provide information about the distributor, wholesaler, and exporter as well. Manufacturers could also be required to take responsibility for better record keeping to ensure that the final destination of their products is as officially intended. Computerized control systems would enable governments to track individual consignments and inspect their progress at any time.

The tobacco companies play a critical role in tobacco smuggling.

A more appropriate response to the threat of smuggling is not a reduction (or even stabilization) of taxes, but the adoption and implementation of strong measures to counteract smuggling itself.