Illicit trade is a global threat particularly in innovation-driven economies. Counterfeiting is a form of illicit trade which is prevalent across various industries, including but not limited to the tobacco industry.

Being a complex phenomenon, the adverse impact of counterfeiting of products is multidimensional and is reflected upon multiple stakeholders of the society and on the economic growth of the nation.

Broadly, counterfeiting of products results in (i) loss of considerable tax revenue as the excise taxes are particularly high thereby creating an economic setback (ii) loss of revenue of innovators/original manufacturers thereby discouraging innovation (iii) adverse effect on health and safety of the consumers (iv) damage to the environment in the event of disposal of the counterfeit products as they are typically made of low quality raw materials and harmful chemicals (v) increase in criminal activities as the proceeds from sale of counterfeit products are commonly used for funding criminal activities, and (vi) labour exploitation.

Further, the severity of the impact of counterfeit products is heavily dependent on the nature of the product being counterfeited. For instance, the counterfeiting of tobacco products have severe ramifications on the consumer health and even poses a direct threat to life.

Since the price-sensitive category of tobacco consumers are low-income individuals and the youth, the consumption of counterfeit tobacco products is likely to increase premature deaths or tobacco-related diseases amongst low-income individuals and the youth.

Hence, a meaningful awareness of the risk associated with the consumption of counterfeit products needs to be amplified amongst the target audience.

Considering these significant impacts of illicit trade, the governments must first examine the different forms and causes of illicit trade of tobacco products prevalent in their respective nation and proactively implement strategic fiscal policies to address them and protect the interest of the consumers.

The governments must align their respective national legislations with the Protocol to Eliminate Illicit Trade in Tobacco Products which is the first protocol to the WHO Framework Convention on Tobacco Control, setting out the global standards to address illicit trade.

It is further recommended to adopt innovative technological solutions to combat illicit trade such as artificial intelligence and blockchain, implementation of effective track and trace systems to monitor tobacco products through the supply chain i.e., from production or import of tobacco products to ultimate sale to consumers, etc.

In India, certain states have implemented track and trace systems for other excisable goods such as liquor and therefore there is a need to adopt a similar legislative framework which provides for robust anti-counterfeiting solutions for tobacco products.

On a policy level, enforcement of significantly high penalties for indulging in illicit trade of tobacco products and tax evasion is an important tool to create deterrence. Further, national governments should promote international collaboration and cooperation to curb cross border illicit trading of tobacco products.

There is also a need for stronger alliance between the central government and the key stakeholders of the society such as corporates, NGOs and the media houses to disseminate information and create public awareness in relation to consequences of engaging in illicit trade.

This worldwide phenomenon can be effectively addressed by building strong alliances and strategic partnerships among key stakeholders at the local, national and international levels and introducing comprehensive fiscal policies setting out enforcement mechanisms, including but not limited to, modern technological solutions to curb illicit trade and control inflation and tax evasion resulting thereof.

(Upendra N Sharma is Partner and Ksanjana Chana an Associate at JSA. Views are personal.)

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