Illicit trade in Smokeless Products and the risks of its undermining global Tobacco Harm Reduction

The illicit vaping market is yet to be fully quantified, a reason for this is the multiple ways in which Vapour Products could be defined as illicit, which creates challenges for law enforcement and other stakeholders. Broadly speaking, illicit vaping can be divided into four segments:

Product restrictions

• Some countries have outright bans on sales of Vapour Products, such as Brazil. In Brazil, all sales of vapes are illicit, but its market value is over USD 800 million, all of which is criminal profits. We do not supply Smokeless Products to Brazil, but the continued growth in the category illustrates how consumers are able to obtain Vapour Products, which are not controlled through regulatory or fiscal measures.
• Many countries around the world have product restrictions, such as vaping tank size and nicotine content limits as well as ingredient bans which restrict flavours. In the UK, it appears that over a quarter of products exceed tank size limits and are therefore illicit, and in many markets such as the U.S., which have not authorised any flavoured products other than tobacco and menthol flavours, most consumers continue to purchase illicit flavoured products. The presence of illicit products undermines Tobacco Harm Reduction efforts across the world.

Retail restriction

• Some countries ban the online sale of Vapour Products, but this does not stop retailers from outside the country offering illicit products through online retail channels. In some EU countries which ban online sales, more than half of all web traffic relating to Vapour Products is to foreign retailers which is very difficult to enforce against. In the Netherlands, a third of vape consumers continue to purchase illicit products online, and in Belgium, one in five similarly purchase illicit products online.

Administrative review and market authorisations 

• A large number of products are often placed onto the market without complying with the relevant administrative controls. This can be identified through reviewing the significant trade gaps that exist between the value of Vapour Products exported to the U.S. and the UK from China, compared with the value of products tracked by Customs authorities. Such analysis indicates that more than 80% of Vapour Products imported into the U.S. are not tracked. This is consistent with an estimate of over 95% of the market lacking FDA authorisation or a court order allowing the product to remain on the market, therefore classifying it as illicit. In the EU, the volume of products notified and listed on a centralised database makes it very difficult for enforcement agencies in each country to check compliance. This leads to high volumes of illicit products. With unauthorised products that often do not comply with product requirements flooding the market, the ability for compliant manufacturers like BAT to compete on level terms is significantly undermined.

Tax

• There is increasing evidence that the amount of tax revenue that should be collected where Vapour Products are taxed goes unpaid. In the EU, of the ten Member States who applied tax to Vapour Products in 2022, seven collected less than half of the tax due. Furthermore, countries which collected less tax often had more complex regulatory regimes, meaning that consumers turned elsewhere to obtain their products.