Consumption of illegal tobacco has reached record levels in Australia, with a new report revealing increased activity from tobacco smugglers and unscrupulous traders as the cost of legal cigarettes continues to rise.
The Illicit Tobacco in Australia Full Year 2014 Report prepared by KPMG LLP in the UK shows illegal tobacco represented 14.5 per cent of total consumption, with nearly 2.6 million kilograms of illicit tobacco consumed last year.
The report, prepared for Philip Morris Limited, British American Tobacco Australia and Imperial Tobacco Australia, reveals the tobacco black market has grown by nearly 30 per cent in two years.
Philip Morris MD, John Gledhill, said the massive growth in illicit tobacco came during a period which saw two 12.5 per cent tobacco excise increases and the implementation of plain packaging in December 2012.
The KPMG report says cigarettes in Australia are now among the most expensive in the Asia Pacific region, costing seven times more than countries like China and South Korea where much of the illegal tobacco is sourced.
Illicit tobacco is mainly smuggled into Australia from overseas and sold at much lower prices than legal cigarettes, avoiding tobacco excise tax obligations. As a result, KPMG estimates that if this tobacco had been consumed in the legitimate market it would represent an excise amount payable to the Australian Government of $1.35 billion.
“We believe the government’s excessive tobacco regulations are providing incentives for the black market and cost its own treasury $1.35 billion in lost revenue at a time when it is under severe fiscal pressure,” Gledhill said.
The price differentials between legal cigarettes and illicit tobacco continues to widen, with the report highlighting that a packet of illegal cigarettes is up to $10 cheaper than a legal product, while loose tobacco or ‘chop chop’ can be more than $17.50 cheaper.
Although consumption of illegal (contraband and counterfeit) cigarettes fell by 17 per cent in 2014, growth in the tobacco black market was driven by a massive increase in consumption of chop chop, which grew by 43 per cent last year and now accounts for 54 per cent of total illicit consumption.
Chop chop is most commonly sold as finely cut loose leaf tobacco in 250g to half kilogram amounts or in boxes of 100 pre-rolled tubes with no labelling or health warnings.
Gledhill said retailers can be fined up to $340,000 for selling tobacco products that breach Federal plain packaging laws, however, despite the growth in the tobacco black market the Department of Health has yet to prosecute anyone.
“As cigarette smuggling continues to grow in Australia, the government must enforce the law and prosecute people caught selling illicit tobacco,” Gledhill said.
“It is also time for the government to reassess regulations like record tax increases and plain packaging which have created the environment for this insidious black market trade.”
