Illicit tobacco market in Moldova shrinks under the influence of tax policies and trade dynamics
Moldova registers a decrease in the share of illegal cigarette trade. According to a study by IPSOS, an international market research company, in September-October 2024, the volume of illicit tobacco products turnover in the country amounted to 9.8%, down by 1.9 percentage points from the same period in 2023. This is the first decrease since 2022, when the market for smuggled and counterfeit tobacco products only grew steadily.
International practice shows that the growth of the illicit market is influenced by the excise policy: rapid price growth against the background of slow growth of household incomes and weak purchasing power, push consumers to the shadow market in search of a cheap analog of their product.
For example, in Romania in 2008-2010, due to a sharp increase in excise tax on cigarettes by almost 700%, illegal trade grew from 13% in 2008 to 36% in January 2010. After that, this country’s authorities revised their approach to excise policy.
The most relevant example today is France. According to KPMG 2023 data, France is the country with the largest illegal market in the European Union. Illegal tobacco products in this country account for 47.7% of the total consumption of illegal cigarettes in the EU. As a consequence, the state budget losses amount to about 7.3 billion euros per year. At the same time, France has the highest taxes and, as a consequence, the highest prices for tobacco products: the cost of a pack of cigarettes reaches 15 euros.
In Moldova, one of the key factors in reducing the illicit market is the change in the tax policy. In June 2023, the government approved the tax calendar for 2024-2026, which provides for a moderate increase in excise taxes on cigarettes - 10% per year on traditional tobacco products.
For comparison, excise taxes were originally supposed to be raised by 15% in 2023, but excise taxes were subsequently raised by 25%, which triggered a sharp rise in smuggling and an increase in the share of the illicit market to 12% in some periods (March-April - 11.9%, September-October - 11.7%). According to KPMG, this caused a loss to the state budget of 23 million euros in 2023, up by 9 million euros or 64% from 2022.
Excise policy in Moldova is more balanced this year. This led to a decrease in the share of illegal sales and an increase in tax revenues to the budget.
At the same time, despite the positive dynamics in the country as a whole, the situation remains uneven in the regional context. In Chisinau, for example, an increase in the illegal market was recorded, which reached 6.9%, up by 3.2 p.p. compared to 2023. And the highest level of illegal cigarette trafficking remains in the southern region of the country, where the share of illegal sales amounted to 14.7%, up by 0.1 p.p. Against this background, the most significant decrease in the illicit tobacco market was noted in the central region - from 14.2% to 7.2%, as well as in the northern region of Moldova - from 14.0% to 11.5%.
The IPSOS study emphasizes that the main share of the illegal market accounts for cigarettes of unknown origin, which do not meet national standards or copy well-known brands without a license - 5.8%. An increase in the sales share of cigarettes without excise stamps is also noted, which went up by 2.3 percentage points (or almost 2.5 times!), and reached 3% of the market volume. To complete the picture, the share of tobacco products intended for sale in other countries amounted to 0.6% (tax-free cigarettes) and 0.4% (duty-free).
The growth of the illegal tobacco market is also conditioned by the economic situation in the country and the smokers' desire to save money, as the average price of illegal cigarettes is much lower (by about 25%) than the legal ones: 34.9 lei against 47.4 lei per pack. This price difference thus continues to stimulate demand for smuggled tobacco products, despite their questionable origin and quality.
IPSOS notes that the distribution channels of illicit products have not changed much. More than 60% of all illicit cigarettes are sold through grocery stores. The share of minimarkets as distribution points increased from 10.8% in the fall of 2023 to 14.1% in the fall of 2024. In supermarkets, the figure was 7.3%. There was also registered an increase in the share of illegal trade in marketplaces, from 3.5% to 6.4%.
The IPSOS study was conducted in September-October 2024 by interview method with random sample collection. It involved 1,500 adult smokers aged 19 to 64 from urban and rural areas, excluding Transnistria. The study was commissioned by the largest tobacco manufacturers and importers - JTI and PMI.
Despite a general decrease in the share of illicit tobacco trade in Moldova, the market is still exposed to risks. Other countries’ positive experience shows that a comprehensive approach is needed to further reduce illicit trade: strengthening control over supply channels, raising consumer awareness of the risks of purchasing and consuming illicit tobacco products, and continuing the policy of moderate excise tax increases.
Against this background, the State Fiscal Service reported that it has intensified its monitoring of compliance with legislation on tobacco products turnover. During February 2025, it conducted 75 inspections of taxpayers for compliance with the pricing policy, the use of excise stamps and the availability of documents confirming the origin of products.
As a result, 18 violations related to the operation of cash registers were detected, for which fines amounting to 42.2 thousand lei were charged. 12 protocols were drawn up for selling cigarettes without confirming their origin, which were submitted to the courts. Another 12 violations were related to the non-compliance with the minimum prices for cigarettes: the cases were referred to the National Public Health Agency. In total, 41 cases of violations of the tax legislation were recorded during one month of the State Fiscal Service raids. The total amount of fines charged reached 237.1 thousand lei.
The State Fiscal Service also reported that within the control measures, over a thousand packs of cigarettes were seized, some of which had signs of fake excise stamps. The Service stresses that, according to the legislation, the sale, transportation and storage of excisable goods without excise stamps or with fake stamps entails a fine from 25 thousand to 35 thousand lei.//28.02.2025 - InfoMarket.
