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36
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36 (131) 2018
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Interviews

Common sense in the fight against the black market

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Ales Struminsky, president of the board of Imperial Tobacco Polska S.A. and general manager of the Central Europe and Ukraine Cluster, which consists of nine markets - Poland, Czechia, Slovakia, Hungary, Ukraine, Azerbaijan, Armenia, Moldova and Georgia, talks about the plans and challenges facing Imperial Tobacco in Poland.

You’re responsible for the operation and growth of many markets of an international tobacco business. How do you see the performance of the business in Poland?

Poland is the largest and most important market I manage on behalf of the Imperial Brands Group. We have two factories in Poland – one in Jankowice near Poznań and one in Radom. It is in these plants that we manufacture tobacco products for sales in Poland, the cluster and for other foreign markets. Despite such large-scale production, thanks to efficient organisation, logistics and high competences, the Polish team is doing so well.

 

We maintain a strong market position in Poland, with a large share of cigarette sales and that we are the leader in the sale of fine-cut tobacco. This is due to our sales forces in particular – we have professional and experienced consultants and managers all over Poland who are able to effectively build relations with business partners. Such a team is the key to the success of the entire company.    

 

How does the current economic or legal situation in Poland affect such a specific, highly-regulated industry?

We’re fully aware that our industry has two faces – on the one hand, we deal with tobacco products, which are often subject to unfavourable opinions. On the other hand, we provide thousands of jobs, creating stability for our workers and their families. As a legally operating company, we fulfil all our tax obligations towards the state. Suffice it to say that the tobacco industry as a whole generates around 24 billion zlotys of revenue for the Polish budget every year. All the more, I cannot understand some of the measures or legislative proposals, such as the one concerning the introduction in Poland, from 2020, of a ban of cigarettes in the slim and super-slim packaging format, which are commonly known as 'thin' cigarettes.  There’s practically no such ban in any other European country – it’s not required by the EU.

What such a ban may mean for the whole industry in Poland?

Not only for the industry, but for the state budget and other affiliated businesses, such as our suppliers, tobacco growers, counterparties selling this type of cigarettes. Poland is a leader in slim and super slim cigarettes – they account for around 30% of the total production - so implementing an incomprehensible regulation is likely to have a negative impact on many parties. Not to mention other side aspects, such as the growth of the shadow economy, which will start to specialise in the production of thin cigarettes. Unfortunately, such a ban will result in tangible financial losses, especially for the state budget.

Revenues from the activities of tobacco companies are a significant item in the state budget. Can this be altered because of such changes?   

There is such concern that both the ban on "slims" and the coming into force of the European regulation banning the production of menthol cigarettes (from 2020) will be the reason for the growth of the shadow economy in Poland. Illegal factories or traffickers will take advantage of this situation, to the detriment of consumers and the entire state apparatus. It’s a bad prospect, because I believe that the Polish tobacco market is stable and will continue to focus on tightening up the system. Any changes that are intended to compensate for the shadow economy, such as increases in excise rates or other levies, are simply unnecessary.

I want to stress that Imperial Tobacco pays particular attention to combating the black market in tobacco products, which brings additional risks to consumers and to the entire economic system of the country, and destabilises the work of legitimate companies and their employees.

Isn't the fight against the grey market a bit of a lost cause?  In particular in the area of tobacco products, a source of fast income for criminals.

That’s why there is one solution – we must always be one step ahead of them. That is why we are constantly taking a number of initiatives and measures to support the state services, regardless of the country, in their fight against the shadow economy. In Poland, for example, we have recently put forward a new proposal on how to tighten the entire system – we are asking for tobacco products, e-cigarettes and production machines to be sold online. In our opinion, entrepreneurs may conduct such activity on the Internet, but only on the basis of permits, under strict supervision of the tax services and on pain of specific criminal sanctions. We are convinced that such a proposal should contribute to additional budget revenues from taxes as well as increase control over the tobacco trade.

The introduction of the "Track&Trace" system for tobacco products is also to be one of the solutions reducing illegal trade. Can you explain what this system is?

We have been preparing intensively for these upcoming changes for a long time. "Track&Trace", also known as a system for the traceability and tracking of tobacco products, which is a direct result of Articles 15 and 16 of the EU's Tobacco Directive. These regulations require that every packet of cigarettes and smoking tobacco be traced and secured as of 20 May 2019. The remaining tobacco products are to be covered by the system by 20 May 2024. It is a huge logistical and organisational challenge for the whole tobacco industry – including our suppliers and retailers. We have less and less time, which is why it is so important that the relevant legislation with the technical details of the 'Track&Trace' system is adopted as soon as possible. In Poland, this is all the more important because the regulations will apply to our two factories which will certainly have an impact on the continuity of production, both domestic and intended for other foreign markets.

Tell us about Imperial Tobacco's plans for Poland; 2019 looks like a time of changes and new regulations.  

We will certainly be strengthening our position among the top tobacco companies in Poland. We want consumers to see our products as quality products, our employees to be satisfied with the workplace and our partners to build a solid business with us. Co-operation with state services is equally important to us, for example in the fight against the grey economy – we’re open to talks and further actions. We will support all activities aimed at tightening up the system and combating the black market for tobacco products.

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