NEWS RELEASE
Member States of EU lose billions in unpaid taxes from
counterfeit and smuggled goods

April 26, 2013

Vilnius, Lithuania — The European Union and Member States lose billions in unpaid taxes every year from counterfeit and smuggled goods. Senior-level tax policy, tax administration and customs officials as well as academics, experts from Eastern European and other countries in a two-day conference in Vilnius address a range of issues involving the shadow economy. The International Conference on the Shadow Economy and Taxation is jointly organized by the International Tax and Investment Center (ITIC) and the Lithuanian Free Market Institute (LFMI).

“In every area of the world where strong price differentials exist between jurisdictions – largely driven by taxation – contraband can be encouraged. The European Union and Member States lose approximately €10 billion in unpaid taxes every year from counterfeit and smuggled tobacco products only”, says Daniel Witt, President of ITIC.

The Eastern European countries or the “new” European Union members, such as Bulgaria, Cyprus, the Czech Republic, Latvia, Lithuania and Poland have higher shadow economies than the “old” European Union countries, like Austria, Belgium, Germany, Italy, observes Prof. Friedrich Schneider (Austria), speaker of the conference.

“This conference is a unique opportunity not only to share good practice in tackling shadow economy, but to expand thinking on how to reduce the illicit activities as well, what is very important for Lithuania and the whole region. It is a good platform to develop proposals how cross government and international cooperation, public-private initiatives can strengthen the forces fighting the shadow economy in order to benefit economic development”, says Žilvinas Šilėnas, President of LFMI.

The conference brings together revenue and customs authorities and policy makers from the EU Member States, World Customs Organization, Interpol, Europol, renowned academics, private sector and industry experts. Among speakers Antanas Šipavičius (Lithuanian Customs), Elizabeth Allen (ITIC), Prof. Louise Shelley (George Mason University), Carlo van Heuckelom (Europol), Dr. Nerijus Mačiulis (Swedbank), Simone Di Meo (Interpol), Vytautas Žukauskas (LFMI), Katarzyna Banaszek (World Customs Organization) and other.

“Smuggling is not just a matter of border security. It is tightly related to the burden of excise tax, general economic situation in the country, public attitudes. Therefore, the most effective ways to combat shadow economy are ones which are directed towards reducing incentive to operate in the shadow economy”, claim Vytautas Žukauskas, LFMI senior expert.

Various researches show, when excise tax levels become excessive, consumers willingly purchase cheaper illicit products to save money. Recent study of LFMI on public attitude towards smuggling and consumption of illegal goods (for fuel, alcohol products and cigarettes) in three Baltic States showed that citizens see large price differences between the Baltic and non EU neighboring states as one of the main reasons determining smuggling, as mentioned by 50% of Latvians, 55% of Estonians and 46% of Lithuanians. 84% of Latvians, 83% of Lithuanians and 76% of Estonians say that the most effect measure to combat smuggling is to reduce taxes (excise).

Prof. Louise Shelly observes that developing countries are the main source of most counterfeits. “Many governments are reluctant to crackdown seriously on counterfeit production because of the economic dislocations it would cause. Therefore, inadequate regulatory and law enforcement resources are allocated at the source, and the products get harder to trace after they depart from the point of production. In most parts of the world, counterfeit products, including cigarettes,  are sought by many consumers. Complicating the problems of detection is that in the developing world, the counterfeit goods often travel with legitimate commodities, thereby reducing risk and maximizing the utility of existing distribution networks.”, claims Prof. L. Shelley.

Elizabeth Allen, ITIC Program Manager, highlights the need for a comprehensive cross national government approach tackling supply and demand. “Criminals will take advantage of weaknesses in legislation and controls and quickly adapt their methods to overcome any new obstacles put in their way. Remember, they don’t have to comply with legislation, departmental rules or financial constraints”, says E. Allen.

The conference is being jointly organized by the International Tax and Investment Center (ITIC) and the Lithuanian Free Market Institute (LFMI). It aims to focus on the nature, extent and implications of the shadow economy and illicit trade for the region and to expand thinking on how to reduce the illicit activities. ITIC is a nonprofit research and education foundation, has worked on tax policy and administration issues throughout Eurasia since its founding in 1993. LFMI is a private non-profit non-partisan organization established in 1990 to promote the ideas of individual freedom and responsibility, free market, and limited government.

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MEDIA CONTACT:
Vidmante Sirgedaite, Communication Officer
Lithuanian Free Market Institute
3A Šeimyniškių St., LT-09312 Vilnius, Lithuania
Tel. 00370-5-250-0281, 
Mobile: 00370-653-70777
E-mail: Vidmante@lrinka.lt