Asia Illicit Tobacco Indicator 216: Singapore Prepared by Oxford Economics October 217
Disclaimer The Asia Illicit Tobacco Indicator 216 Report (the Report ) on the illicit tobacco trade in selected Asian markets (including Australia and New Zealand) has been prepared by Oxford Economics (OE). OE enjoyed academic freedom and full editorial control of the Report. We are grateful for the inputs and data received from public sector and industry stakeholders. OE prepared the Report in accordance with specific terms of reference agreed between Philip Morris International Management SA, an affiliate of Philip Morris International (PM), and OE. Financial support for the Report was provided by PM. OE assume all responsibility for the Report analysis, findings, and conclusion. The terms of reference under which OE were engaged by Philip Morris International Management SA are detailed in the Asia Illicit Tobacco Indicator 216 Methodological Overview Report, available to download via the following link illicittobacco.oxfordeconomics.com 2
Singapore: Legal Domestic Sales Legal Domestic Sales in Singapore are estimated at 2.8 billion cigarettes for 216, a decline of 2.2% from 215 (equivalent to around 63 million cigarettes), and the second consecutive year of declining sales. Nevertheless, in comparison with other economies where Legal Domestic Sales have fallen consecutively (e.g., Malaysia), Legal Domestic Sales in Singapore have been relatively stable through the five years covered by the Asia Illicit Tobacco Indicator. PMI (48%), JTI (25%), and BAT (2%) collectively accounted for an estimated 93% of total Legal Domestic Sales in 216. To try to reduce the level of tobacco use, several amendments to the Tobacco Act (Control of Advertisements and Sale) have been outlined in the legislature. One of the upcoming regulatory changes that could have an impact on legal cigarette consumption is to gradually increase the Minimum Legal Age for sale, purchase, use, and possession of tobacco products from 18 to 21 years old. This follows a public consultation on this proposal which was held at the beginning of 216. The Tobacco Act was last amended in 216 to ban Point-of-Sale display of tobacco products. This legislation is due to take effect from August 217. In addition, the Health Promotion Board is exploring options for standardised packaging and will be holding a public consultation session to canvass views on moving in this direction. After increasing by 1.2% in 214, Excise Tax has remained stable for the past two years at SGD 388 per 1, cigarettes. As a consequence, cigarette prices have also remained stable over this period. A pack of the Most Sold Brand of cigarettes in Singapore cost SGD 13. in 216. Excluding New Zealand and Australia, where nominal average pack prices are around USD 15, Singapore has the highest prices for domestically sold legal cigarettes in the Asia-Pacific region. At USD 9.57, the nominal price of the Most Sold Brand in 216 was more than twice the level in neighbouring Indonesia (USD 1.78) and Malaysia (USD 4.16). 1 Singapore Legal Domestic Sales: 2.8 bn cigarettes Price: SGD 13. USD 9.57 1 Price per pack of 2 of the Most Sold Brand in October 216 based on industry data. 3 Singapore Market Summary
Singapore: Excise duty applied to cigarettes 2 4 35 1.2%388 388 388 352 352 352 352 352 352 PHP per pack of 2 cigarettes 3 25 2 15 1 5 28 29 21 211 212 213 214 215 216 Source: Singapore Customs 2 Rate applied in October of each year to the Most Sold Brand. Singapore: Legal Domestic Sales and prices 3 3. Cigarette sales bn SGD per pack of 2 cigarettes 18 Cigarettes bn 2.5 2. 1.5 1..5 15 12 9 6 3 SGD per pack of 2 cigarettes. 28 29 21 211 212 213 214 215 216 Source: Oxford Economics based on industry data 3 Price of the Most Sold Brand in October of each year. Singapore Market Summary 4
Singapore: Cigarette Consumption The results from two Empty Pack Surveys and Singapore Customs data on the volume of duty-paid releases of tobacco were used to estimate Total Consumption of cigarettes in Singapore. 1 Total Consumption (legal and illicit) is estimated at 3.1 billion cigarettes in 216, down just over 5% from 215. Of Total Consumption, 88% or 2.7 billion cigarettes are Legal Domestic Consumption. There is no Non-Domestic Legal consumption due to the zero passenger duty-free personal import allowance limit in Singapore. The remaining 12% of Total Consumption is therefore all illicit. Over the past year, Legal Domestic Consumption fell by 2.6% in comparison with 215 a second consecutive year of decline following a 1.5% fall in 215. Illicit Incidence has exhibited a modestly declining trend over the last few years. In 216, Illicit Consumption accounted for 12% of Total Consumption in Singapore, down from 14.4% of Total Consumption in 215. In volume terms, an estimated 372 million illicit cigarettes were consumed in Singapore in 216. This has fallen every year since 212. The fall of 21% in 216 is significant when benchmarked against that witnessed in 215 (around 3%). Singapore: Composition of cigarette consumption 2 Legal Domestic Consumption (LDC) Legal Domestic Sales (LDS) Outflows of domestic duty-paid cigarettes Total Non-Domestic Inflows (ND) Non-Domestic Legal (NDL) Cigarettes bn 212 213 214 215 216 % % Cigarettes bn % Cigarettes bn % Cigarettes bn % Cigarettes bn % change 215-16 2.6 74.4 2.8 8.4 2.9 85.4 2.8 85.6 2.7 88. -2.6 2.6 2.8 2.9 2.8 2.8-2.2..... 58.3.9 25.6.7 19.6.5 14.6.5 14.4.4 12. -21.2.......... n/a Non-Domestic Illicit.9 25.6.7 19.6.5 14.6.5 14.4.4 12. -21.2 Domestic Illicit.......... n/a Total Consumption 3.6 1. 3.5 1. 3.3 1. 3.3 1. 3.1 1. -5.3 Total Illicit Consumption.9 25.6.7 19.6.5 14.6.5 14.4.4 12. -21.2 Source: Oxford Economics 1 The Empty Pack Surveys were undertaken in 216Q2 and 216Q4 (see Report methodology for more details). 2 Historical figures have been restated as the Report now uses Singapore Customs data for Legal Domestic Sales rather than IMS data. 5 Singapore Market Summary
Singapore: Composition of cigarette consumption (% of Total Consumption) 1 8 25.6 19.6 14.6 14.4 12. % of Total Consumption 6 4 74.4 8.4 85.4 85.6 88. Illicit Consumption Legal Domestic Consumption 2 212 213 214 215 216 Source: Oxford Economics Singapore: Composition of cigarette consumption (number of cigarettes) 3.5 3. 3.6 3.5 3.3.9.7.5 3.3.5 3.1.4 Cigarettes bn 2.5 2. 1.5 2.6 2.7 2.9 2.8 2.7 Illicit Consumption Legal Domestic Consumption 1..5. 212 213 214 215 216 Source: Oxford Economics Singapore Market Summary 6
Singapore: Government Finances Tobacco taxation in Singapore comprises a unit-specific Excise Tax duty of SGD 388 per 1, cigarettes, held steady at this level since 214, prior to which a duty of SGD 352 per 1, was levied. Additionally, an ad valorem GST rate of 7% on top of the post-duty Excise Tax also applies, in common with other goods and services. After edging down by around 2% in the fiscal year 215/16, local currency revenues from tobacco taxes fell by 18.2% in 216/17. This is in line with the decline in Legal Domestic Sales for the fiscal year 216/17 (running from April 216 to March 217), which also fell by 18.2%. 1 More positively, the sharp fall in Illicit Consumption means that our estimate of the Tax Loss from Illicit Consumption of cigarettes fell from SGD 216 million in 215/16 to SGD 143 million in 216/17, a fall of 33.9%. The bulk of this loss (SGD 67 million) is accounted for by lost Excise Tax duty revenue, with an additional SGD 6 million representing lost GST revenue. Over the course of the five years of the Asia Illicit Tobacco Indicator research, the value of Excise Tax lost due to the consumption of illicit cigarettes and the share this represents of the total potential tobacco Excise Tax yield have fallen markedly. The loss to the government in 216/17 is around half of the loss estimated for 212/13, and accounts for just 11.7% of total potential Excise Tax revenues, versus 24.9% in 212/13. Singapore: Actual government revenues and estimated Tax Loss 212/13 fiscal year SGD USD 213/14 fiscal year SGD USD 214/15 fiscal year SGD USD 215/16 fiscal year SGD USD 216/17 fiscal year SGD USD % change in local currency 215/16-216/17 Actual revenue from excise duties on tobacco Estimated number of illicit cigarettes purchased (cigarettes ) Estimated Tax Loss from Illicit Consumption 969 78 1,43 828 1,228 953 1,25 869 986 712-18.2% 913 696 526 59 335-34.1% 357 287 271 215 224 174 216 156 143 13-33.9% Lost excise revenue 321 258 247 196 24 158 197 142 13 94-34.1% Lost VAT revenue 36 29 24 19 19 15 19 14 13 9-31.4% Excise Tax Loss as % of potential total Excise Tax revenues 24.9% 19.1% 14.3% 14.1% 11.7% Source: Singapore Customs and Oxford Economics based on industry data Estimated number of illicit cigarettes purchased adjusted for fiscal year. Fiscal years run from April to March. 1 Data from Singapore Customs suggests that while Legal Domestic Sales in the 216 calendar year declined by 2.2% vs. 215, when comparing fiscal year data, Legal Domestic Sales fell by 18.2% in 216/17 compared with 215/16 (Legal Domestic Sales declined by more than 22% y/y in the first three months of 217). 7 Singapore Market Summary
Singapore: Actual government revenues and estimated Excise Tax Loss 1.2 1. Actual Excise Tax revenues SGD bn.8.6.4.2 1. 1. 1.2 1.2 1. Estimated Excise Tax Loss..2.3.2.2.2.1.4 FY 212/13 FY2 13/14 FY 214/15 FY 215/16 FY 216/17 Source: Singapore Customs and Oxford Economics based on industry data Singapore Market Summary 8
Singapore: Trade Flows The market for illicit cigarettes in Singapore is composed entirely of Non-Domestic products, with around 85% of illicit cigarettes coming from Indonesia (where the average pack price is USD 1.78) and Malaysia (where the average pack price is USD 4.16). There are no legal Inflows into Singapore, as there is a zero passenger dutyfree personal import allowance. Inflows of illicit cigarettes have fallen by more than 2% in the last year, falling from 473 million in 215 to 372 million in 216. Nevertheless, Illicit Incidence remains in double-digit levels in Singapore, underpinned by strong incentives for smuggling cigarettes. Anecdotal evidence suggests that illicit cigarettes retail for around SGD 6 per pack of 2, less than half the price of the Most Sold Brand of a legally sold pack of cigarettes. 1 As such, the government has maintained a vigilant presence with respect to cross-border flows two raids conducted in January 217 seized a total 25,5 cartons of illicit cigarettes (5.1 million individual cigarettes), the largest ever seizure reported in Singapore. In the fiscal year 216/17, Singapore Customs seized 2.8 million packs of cigarettes. Seizures have been maintained around this level since 213/14, with customs officials successfully smashing 3-4 syndicates per year. 2 Given the high cost of cigarettes relative to the region (except with respect to the highest-income economies), we do not identify meaningful volumes of legally-bought cigarettes flowing from Singapore to other Asia- Pacific economies covered in the Asia Illicit Tobacco Indicator. 3 Singapore: Origin of total Non-Domestic Illicit Inflows 4 Other / Unspecified 17 (-41.6%) Counterfeit 2 (+137.5%) Other Duty- Free labelled products 37 (+27.8%) Total 372 (-21.2%) Malaysia 112 (-18.6%) Indonesia 25 (-19.6%) Cigarettes 212 213 214 215 216 Indonesia 644 447 256 255 25 Malaysia 25 168 164 137 112 Other Duty-Free labelled products 5 31 37 51 37 Other / Unspecified 11 32 29 29 17 Counterfeit 1 4 1 2 Total 91 678 489 473 372 Source: IT Flows Model and Oxford Economics 1 http://www.tnp.sg/news/singapore/illegal-cigarette-peddlers-back-yew-tee 2 Singapore Customs, Yearly Enforcement Statistics 3 Note that estimated Outflows of duty-paid cigarettes are based only on identified Inflows in the other markets covered in this Report and may therefore be an underestimate. 4 Figures in brackets reflect % change from 215. 9 Singapore Market Summary
Singapore: Consumption breakdown 216 5 1, Cigarettes 1,5 2, 2,5 3, 3,5 Legal Domestic Sales 2,761 Outflows of duty-paid 26 Legal Domestic Consumption 2,735 Indonesia 25 Malaysia 112 Other Duty-Free labelled products 37 Non-Domestic Legal Inflows Other/ Unspecified 17 Illicit Inflows Counterfeit 2 Total 3,17 5 1, 1,5 2, 2,5 3, 3,5 Cigarettes Source: IT Flows Model and Oxford Economics Singapore Market Summary 1
Singapore: Other Estimates Source Comparing consumption estimates with LDC ("bottom up" approach) Euromonitor Passport, 217 Comment Using data on average annual cigarette consumption per adult (age 15 and above), plus UN population data, a "bottom up" estimate of cigarette consumption can be made which can then be compared with LDC. This approach yields an estimate for the Illicit Incidence of 5.6%, or around 167 million cigarettes (based on 214 LDC). The source for annual cigarette consumption per adult is Euromonitor, 214 (available via www.tobaccoatlas.org). Euromonitor estimates an Illicit Incidence of 3.7% in 216. The methodology, sampling, and coverage are unknown, so it is difficult to assess the robustness of this estimate. Singapore: Alternative estimates of Illicit Consumption 15% 12 9 6 12. 3 3.7 5.6 Oxford Economics (216) Euromonitor (216) Bottom up consumption (214) 11 Singapore Market Summary
Singapore: Data Sources Primary source Calculation Comments Legal Domestic Sales (LDS) Singapore Customs data on the Duty Paid Releases of Tobacco. Outflows of domestic duty-paid cigarettes Empty Pack Survey data in other markets covered in this Report. Empty Pack Survey data in other markets used to identify the presence of packs bearing Singaporean market-specific labelling (e.g. health warnings, tax stamps etc.). Limited Outflows identified from Singapore in other Empty Pack Surveys. Legal Domestic Consumption (LDC) Total Non-Domestic Inflows (ND) Non-Domestic Legal (NDL) Legal Domestic Sales minus Outflows of legal sales. Sum of Non-Domestic Legal and Non-Domestic Illicit. Estimated using passenger data, smoking rates, and passenger duty-free personal import allowance. Limited Outflows of dutypaid cigarettes, so Legal Domestic Sales and Legal Domestic Consumption closely aligned. The passenger duty-free personal import allowance for Singapore is zero. Non-Domestic Illicit Empty Pack Surveys. Based on Empty Pack Surveys plus OE estimates. Domestic Illicit Zero under-declaration of domestically produced cigarettes. Estimates derived from the average of Empty Pack Surveys conducted in 216 Q2 and 216 Q4. See Report methodology for more details. There is assumed to be no under-declaration of domestically produced cigarettes. Total Illicit Consumption Sum of Non-Domestic Illicit and Domestic Illicit. Total Consumption Legal Domestic Sales minus Outflows of domestic duty-paid cigarettes, plus estimated Non-Domestic Legal consumption, plus estimated Illicit Consumption. Total Tax Loss Total Illicit Consumption multiplied by the weighted average tax rates (Excise Tax and GST). The IT Flows Model estimate of consumption is 3.1 billion cigarettes for 216. See Report methodology for more details. Singapore Market Summary 12
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