France driving illicit tobacco market in Europe, says KPMG

Last year, an estimated 35.5bn illicit cigarettes were consumed in Europe, a 3.9 per cent increase on the previous year, according to a KPMG report commissioned by tobacco giant Philip Morris International.

The increase – equivalent to 1.3bn more illegal cigarettes smoked over the previous – marks an acceleration over the 800m increase recorded in 2020 and according to KPMG was driven by a 33 per cent increase in France.

All told, the results suggest that illicit cigarettes account for more than 8 per cent of the total market across European countries – equivalent to around €10.4bn (almost $11bn) in lost taxes to the EU27 member states, the UK, Norway, and Switzerland.

"Tax revenue losses will limit governments' ability to invest in areas such as public safety, public services, or infrastructure, at a time when people across Europe are also facing higher prices of many basic goods," said Gregoire Verdeaux, PMI's head of external affairs.

"The risk that more adult smokers – especially those among the lower-income population – turn to illicit trade is now significant," he added.

Illicit consumption grew primarily due to the growth in counterfeit, according to the KPMG report, which defines counterfeit cigarettes as those that are illegally manufactured and sold by a party other than the original trademark owner.

The increase of illicit consumption was largely driven by an estimated 33 per cent increase in counterfeit consumption in France, according to the report, which found that the country made up almost two-thirds of counterfeit consumption in the EU.

Illicit ‘whites’ with no country specific labelling – i.e. legally produced cigarettes that are smuggled and traded illegally, often through free trade zones (FTZs) – fell 11 per cent to 8.6bn cigarettes and accounted for 24 per cent of illicit consumption, down from around 28 per cent in 2020.

The report also found a continuation in the earlier trend of increased illicit production within EU borders, with imports from outside the region falling in the face of tighter border controls, in part due to investments in detection technology such as X‐ray machines and other scanners.

"Illegal manufacturing sites are increasingly moving West in Europe to get closer to higher‐priced end markets and reduce the risk of moving higher value and more easily detectable finished goods to consumers," according to KPMG.

In addition, the closure of the majority of border crossing points from Belarus has interrupted flow of counterfeit and contraband cigarettes from a "major historical source."