ILLICIT trade as a cankerworm has eaten deep into the fabrics of the society. It has bastardized the market so much that counterfeit products have taken over the market to the detriment of the consumer, the government and the general public at large.

In most of our markets, consumers rarely have access to quality products as a result of the domineering counterfeit products that have suffused every space. The spate of occurrence is so pervasive such that it cuts across all ramifications of product categories and market levels.

By way of explanation, illicit trade includes the various practices or conducts prohibited by law and which have connection to production, shipment, receipt, possession, distribution, sale or purchase as well as those practices or conducts intended to facilitate such activities. These are huge drainpipes denying the government its due revenue and to a great extent paralyze the overall effectiveness of the government to provide services and needed infrastructure for the people.

While the perpetrators of these unpatriotic and shady deals are smiling to the banks, the government, consumers and the society at large are respectively made to suffer avoidable drought in revenue and health hazards as a result of use or consumption of substandard goods and unavailable infrastructural facilities. The simple fact is that illicit trade impoverishes the government and the people of any nation that refuses to take a drastic step to stem it.

Although, statistics are scanty, the available ones relating to lost revenue are mind-boggling. According to PA Consulting Group, global illicit trade results in huge financial losses to both governments and companies, and it has serious implications for public health and crime. The group’s findings estimate that global illicit trade in pharmaceutical products is over $200 billion per year. For tobacco sector alone, it is estimated that nearly £25 billion in tax revenue is lost each year by the government.

The loss could arise from practices such as when containers are exported illegally and duty unpaid. In other instances, containers find their ways into countries where they have no market only to dissolve into the contraband market. Such containers are transported through illegal routes into markets without payment of the necessary fees and import duties to governments’ agencies.

As observed earlier, accurately quantifying the scale of illicit trade is difficult. In 2011, Euromonitor International estimated the volume of illicit trade on tobacco products at around 360 billion cigarettes annually (excluding China). China is said to control over 10 per cent of the global market.

According to the research agency, governments lost an estimated 40 to 50 billion USD from their combined national budgets each year due to the illicit trade in both contraband and counterfeit cigarettes.

The research goes on to point out that a single 40-foot container can hold 10 million illicit cigarettes. “In the European Union, this represents an average loss of customs duty, excise duty and VAT of €2 million. In some countries, the loss may be much higher”.

If these losses suffered by governments in unearned revenue in tobacco trade alone is so high, then it means other illicit trade prone sectors such as pharmaceutical, textiles, home appliances, foot wears, jewelries and a host of others, continuously rob governments and their citizens of unquantifiable huge sum of revenues that would have been put to good use for the benefit of the populace.

Factors that encourage illicit trade

There are a number of factors that give rise to this global issue of illicit trade. However, we will consider two of such. These include high incidence of taxation and inept laws and enforcement.

The excessively high and sometimes the incidence of multiple taxes meted out to legitimate businesses, encourage unpatriotic businesses and entrepreneurs to go underground. This is done in a bid to escape taxes hence dealing in illicit trade. Perpetrators are able to avoid taxes, duties and levies, thereby enticing consumers with the cheap prices. However, bulk of the good traded in are smuggled products.

At best, the law enforcement agencies pay lip service to the issue of illicit trade. The country’s boarders have become porous to counterfeit goods. In most instances, the will to perform is lacking. It is no secret that officials trade off their responsibilities or compromise at the entry points for personal gains.  Yet in other instances, agency officials bow to the superior fire power of the smugglers because they lack necessary gadgets and equipment to ward off and suppress smugglers from perpetrating their nefarious activities. Where these dubious characters are caught, they are rarely made to face the weight of the law. Shocking revelation is that they buy their ways out.

The ways out

To block this huge leak in government revenue, the government needs to devise and operate a balanced tax policy and effective collection system. When setting tax rates, governments need to take into account the level of economic development, the purchasing power of the consumer and the tax rates in neighboring countries. Experience has shown that radical excise “shocks” are more likely to lead to the emergence or growth of illicit trade. So, high tax rates and multiple taxes should be discouraged.

Legislation on illicit trade should be simple and clear with no ambiguities, no double standards. These would provide the basis for control and punishment for offenders. Agencies should be adequately empowered and compensated to carry out their responsibilities. Also, clear offences and appropriate penalties must be apportioned to offenders; there must be systematic destruction of all seized illicit products, raw materials, manufacturing equipment and components and as well as putting in place legislation to protect brand owners’ right to product violations.

As the ultimate arbiter, the judiciary must be strengthened to ensure the ultimate success of the anti-illicit trade campaign in plugging government’s revenue leakages arising from the act. The judiciary must be equipped to quickly deal with cases submitted by the enforcement agencies. The interventions of enforcement authorities need to be based on adequate laws passed by the legislature and supported by appropriate penalties which have to be made available to and used by courts to stem the activities of the criminals. This will in the long run serve as deterrent to intending agents and perpetrators of illicit trade.

The harm of illicit trade does not only make funds unavailable for infrastructure and development, but it also endangers the health and well being of the citizens in times of squeeze on government’s finance. Therefore, success against illicit trade in all its ramifications can only be achieved through government’s will power to block the leakages and being decisive on harnessing resources to developing the nation’s much needed infrastructural facilities.

• Babatunde, a social commentator and marketing analyst, writes from Lagos.