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Study points to huge revenue loss from cigarette smuggling

Recommended solution: a stamp tax program
fili@samoanews.com

A local feasibility study of a cigarette tax stamp program in American Samoa estimated that some 5 million cigarettes were smuggled into the territory two years ago, resulting in a loss of more than $700,000 to ASG in excise tax revenues.

The 28-page study released last August, prepared by consultant Bryan M. Jackson, was commissioned by the American Samoa Community Cancer Network following a May 2011 Territorial Audit Office report, which found that cigarettes were likely being smuggled into American Samoa, and that as a result ASG was losing a significant of amount of cigarette excise tax revenue each year.

The TAO report recommended that ASG implement a cigarette tax stamp program in order to control and prevent this smuggling. The program would place a stamp on all cigarette packages cleared through Customs. In return, any cigarettes sold in local stores without a stamp, would indicate they were a smuggled product.

During last week Tuesday’s House committee hearing on the Togiola Administration bill to fund the LBJ Medical Center off island medical referral program, Rep. Larry Sanitoa pointed briefly to the TAO report as well as findings by the feasibility study. He suggested to government witnesses to look into implementing this program to ensure all imported cigarettes are taxed instead of the government proposing another hike in cigarette taxes.

Sanitoa told Samoa News over the weekend that he still maintains that ASG should seriously consider this cigarette stamp program, because imposing another hike “will further increase smuggling of cigarettes in the territory, which then defeats any purpose by the government to collect any new revenues.”

As reported by Samoa News in its May 16, 2011 edition, the TAO report focused on the Customs Inspection Division in collecting excise tax. It says that there is a high risk that many tobacco products are not being declared and taxed.

TAO recommends that Treasury sell stamps to vendors, and vendors will then affix the stamp to every package of tobacco to be sold in American Samoa. Moreover, vendors should not be issued stamps if they cannot provide an excise tax payment receipt from Customs.

TAO says that this method is used by a number of states, including Washington state, California and Virginia and the cost of the stamps should cover administrative costs for implementing this program.

On his weekend radio program, Gov. Togiola Tulafono acknowledged that the government is faced with the problem of cigarette smuggling, which is something ASG is trying to address. The governor, however, didn’t specify what methods — if any — are being used to detect or stop cigarette smuggling.

FEASIBILITY STUDY

In order to establish the need for a cigarette tax stamp program, the feasibility study estimated the number of cigarettes that were smuggled into American Samoa in 2010.

That estimate, based on an analysis of demographic and cigarette excise tax data, indicated that as many as 5,792,924 cigarettes had been smuggled into the territory that year. The study also states that smuggling refers to both the evasion and avoidance of excise taxes.

At the territory’s cigarette excise tax rate of $0.125 per cigarette, this represented a revenue loss to ASG of $724,116, it says.

According to that estimate, the percentage of revenue lost to the government of American Samoa due to cigarette smuggling in 2010 was 8.4 percent, but the study calculated that even if the percentage of excise tax revenue lost to cigarette smuggling was only 3 to 5 percent, the revenue losses in 2010 would have still ranged from $257,547 to $429,247, according to the study.

The study also provided the following conclusions:

•            Based on an analysis of available data as well as other evidence, it was likely that millions of cigarettes were smuggled into the territory each year and that this smuggling deprived the government of American Samoa of hundreds of thousands of dollars.

•            That the territory's smuggling problem would continue and was likely to become worse in the near future if the cigarette excise tax rates were to be increased, and that such smuggling would deprive the government of badly-needed revenue and pose an on-going threat to public health.

•            That the government should take immediate measures to combat the problem, including the implementation of a cigarette tax stamp program.

•            That such a program would facilitate the control and tracking of cigarettes imported into American Samoa and would be cost-effective.

In support of its recommendation to implement a cigarette tax stamp program, the feasibility study’s report, among other things, examines possible sources of cigarettes smuggled into American Samoa; discusses how a cigarette tax stamp program in American Samoa would work and what would be needed to implement this program. It also estimates the costs involved in establishing this program and its potential economic benefits.

Samoa News will report later in the week on some of these issues.

The study does not believe that large quantities of cigarettes are smuggled into the territory on a regular basis. However, when it comes to casual smuggling — or the smuggling of small quantities of cigarettes intended for resale — it is likely that this type of cigarette smuggling occurs in the territory on a regular basis,  the report says.



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