Hungary: Estimation of Smuggling Activity in the Hungarian National Accounts

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National Accounts calculations include three types of illegal activities: drugs, prostitution, smuggling of tobacco.
Including these transactions affects output, intermediate consumption, gross value added, final consumption, and export and import figures.
Results for exports and imports are transmitted to external trade statistics and balance of payments statistics.
Reference year of the calculation is 2011 as reported in the GNI Questionnaire 2015 and based on the ESA 2010 GNI Inventory of Hungary (2015).

Customs seizure data: value of seized alcohol products around 250-300 million HUF.
Assumption: 10% seizure rate implies whole illegal alcohol market around 2.5-3 billion HUF.
Market estimate includes illegally produced alcohol in Hungary as well as contraband; assumption that half of the illegally available alcohol is contraband.
Assumed trade margin: 50%.
With intermediate consumption of smuggling treated as insignificant, estimated value added: 650-730 million HUF.
Estimated share of GDP: 0.0024% of the GDP.
Conclusion: smuggling of alcoholic beverages is negligible in Hungary; no reliable data to divide seizures between domestic and imports origin; alcohol smuggling is not incorporated into the national accounts.

Tobacco smuggling identified as a significant issue due to lower prices in countries at Hungary’s eastern border and regular illegal imports.
Primary data sources: regular waste-analysis studies by GfK and administrative data of the customs authority.
Important supplementary information: “Project Star 2012” report of KPMG, compiling Empty pack surveys, EU flows model, non-domestic legal analysis, and integrated models for 2006–2012.
Principal methodological challenge: demand-side approach based on surveys underreports tobacco consumption; waste analysis (empty pack surveys) is used to identify share of cigarettes smuggled from abroad.
For estimation of cigarettes from abroad:
- GfK waste-analysis data used for the amount of cigarettes from abroad.
- KPMG data used for the share attributable to legal but unregistered private import for own use.
- Difference yields quantity of illegally imported (smuggled) cigarettes.

Project Star country flows model identifies three main sources of smuggled cigarettes: Ukraine, Serbia, and Belarus, which together account for 80% of the illegal Hungarian import.
Import prices estimated using weighted average prices in origin countries; weights are quantities of illegal imports from each country in relevant years.
Retail prices available from Project Star for 2012; for previous years national year-to-year price indices for tobacco products were used.
Trade margin of smuggling estimated as import price subtracted from sales price.
Expert assumption: street price of smuggled tobacco product equals the retail price without value added tax.
Conversion of import prices into HUF uses the annual average HUF/EUR exchange rate of the National Bank of Hungary.

Typical intermediate consumption items (transport, storage, distribution) are often already recorded in National Accounts because smuggling is not a standalone activity and contraband is hidden within legal cargo.
As a result, intermediate consumption for smuggling was not estimated and is treated as insignificant.
Consequently, gross value added (GVA) generated by smuggling is taken to equal the trade margin.
Entire GVA is recorded as mixed income because institutional units engaged in smuggling are private persons (households).

Referred studies indicate illegal export of cigarettes originating from Hungary is zero or negligible.
Sales value of smuggled cigarettes is incorporated into household consumption expenditure calculations because prior consumption figures did not include smuggled cigarettes.
Estimation of smuggled tobacco value is based on supply and use tables and excise duty data; contraband cigarettes are not included in those data unless adjusted by this methodology.