Beer Smugglers Cost Gov’t $22 Million in 2006

Millions of bottles and cans of beer make their way from Thailand and Singapore to the Cambodian border, where they seem to disappear year after year in ever greater numbers, according to a new report released Wednesday.

That vanishing act cost the Cambodian government $22 million in lost tax income last year, or about three percent of total government budget revenues, according to the Economic Institute of Cambodia report, which was commissioned by two local brewers, Cambodia Brewery Ltd and Cambrew Ltd.

In 2006, contraband beer accounted for 29 percent of Cambodia’s total beer market, dwarfing legal imports, which limped in at 6 percent. The remaining 67 percent of beer in Cambodia was locally produced, the report found.

“The government lost a lot of money,” EIC Director Sok Hach said in an interview.

To track the missing bottles and cans, EIC compared customs data from Thailand and Singapore-where most of Cambodia’s imported beer originates-with Cambodian customs statistics.

The EIC found that while Cambodian customs statistics nearly matched Singaporean data, almost all the beer arriving from Thailand was, officially speaking, missing in action.

Thai customs data showed that 2.49 million cartons of beer were exported to Cambodia in 2004, but Cambodian customs statistics put imports at only 0.03 million cartons.

By 2006, even more beer was getting lost: Thailand said it exported 5.22 million cartons, but Cambodia claimed to have received only 0.13 million cartons, according to the report.

Total contraband beer rose from 2.52 million cartons in 2004 to 5.27 million cartons in 2006, according to the EIC.

So what’s happening to beer at the border? Nothing at all, said provincial customs officials from Banteay Meanchey and Battambang.

Pho Phalla, acting chief of customs in Banteay Meanchey, said Thursday that since he took over in December 2006, there has been no smuggling.

“I tighten things up,” he said. “I am careful.”

Srey Seang, customs branch chief in Battambang, said he did not know how-or where-all that beer was sneaking into Cambodia.

“There have been no problems in my province,” he said, declining to comment further.

Chea Mong, general manager of Asia Sunrise Co Ltd, which imports Japan’s Asahi beer, declined to comment on the issue.

According to the EIC report, Asahi accounts for the largest share-35 percent-of all imported beer in Cambodia.

In addition to taking a bite out of government revenue, beer smuggling puts local brewers at a competitive disadvantage.

Local beer is taxed at 40 percent; imported beer is taxed around 84 percent, which includes a 35 percent customs duty, according to the EIC report.

Smugglers, of course, don’t pay taxes.

Local beer producers are also hurt because they don’t have the economies of scale and quality infrastructure-including cheap electricity-that their competitors in neighboring countries enjoy, Sok Hach said.

“It’s a big problem, not just for beer, but for anyone trying to produce locally,” said Bretton Sciaroni, a partner at Sciaroni & Associates.

Sciaroni co-chairs a monthly working group on law, taxation and good governance for private sector and government officials, and he says smuggling has been a recurring issue.

Swiss foods giant Nestle closed its factory on National Route 5 a few years back because its locally made milk products couldn’t compete with rampantly smuggled goods, he said.

Local Nestle officials could not be reached for comment.

“So much money is being made off the smuggled goods that the loss of one factory-even a major name-didn’t provoke any strong reaction,” he said.

“There’s huge money involved,” he added.

Patrick Pech, the deputy country manager for Cambodia Beverage Company, which produces Coca Cola, Sprite, and Fanta in Cambodia, said their market research showed that 20 to 25 percent of sparkling beverages in Cambodia are contraband.

“It’s difficult to fight this product,” he said.

CPP lawmaker and Finance Commission Chairman Cheam Yeap said the National Assembly has encouraged customs officials to crack down on smuggling, and the Finance Ministry has been working hard to stop it too.

“The top level tries hard but the middle and low levels just ignore it, so smugglers take advantage of the opportunities,” he said.

Government spokesman and Information Minister Khieu Kanharith wrote in an e-mail that companies could ask authorities to take action against smugglers.

“These actions have been taken by many companies already, [including] Johnny Walker, Canon, HP,” he wrote.

John Nelmes, Cambodia resident representative for the International Monetary Fund, wrote in an email that smuggling is without doubt a “major challenge,” and praised the EIC report for showing one way the government could significantly boost tax collection.

Cambodia’s ratio of government revenue to GDP is just 12 percent, the lowest in the Asia Pacific region, according to global ratings agency Standard & Poor’s.

The EIC did deliver one bit of good news for local brewers: Cambodians are drinking more beer than ever.

Per capita beer consumption in Cambodia was as much as nine liters in 2006, and has grown as much as 24 percent a year from 2004 to 2006.

Cambodia Brewery Ltd officials in Cambodia and Singapore did not return requests for comment, and Say Sana, Cambrew’s local chief of operations, declined to comment.

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