MELBOURNE, Australia – A 12.5% tobacco tax hike which comes into effect 1 September will fuel the growth of the black market for cheap, illegal and unregulated cigarettes.
Philip Morris Limited spokesman Simon Dowding said tomorrow’s increase will push the recommended retail price for the cheapest pack of 25 cigarettes above $20 and of that price, 72% will go to the government in tax. For example, adult smokers will pay $15.20 in tax ($13.27 in tobacco excise plus $1.93 in GST) for a pack of Bond Street 25s with a recommended retail price of $21.25.
Cigarettes in Australia are now among the most expensive in the world following a 25% tobacco excise increase in 2010 and three 12.5% increases in 2013, 2014 and 2015. A further 12.5% increase is planned for 2016.
“These successive tobacco tax hikes make Australia a lucrative target for organised crime gangs involved in the smuggling, growing and selling of cheap, illegal tobacco,” Mr Dowding said.
“The tobacco black market is already booming in Australia and will continue to grow as government taxes push the price of legal cigarettes even higher, punishing adult smokers and honest retailers in the process.”
Last year, analysts KPMG estimated that 2.6 million kilograms of illegal tobacco – the equivalent of 3.25 billion cigarettes – was sold on the black market. Furthermore, KPMG found the tobacco black market in Australia has grown by nearly 30% in two years and in 2014 accounted for a record 14.5% of total tobacco consumption. KPMG estimates that the black market cost taxpayers an estimated $1.35 billion in lost tobacco taxes last year.
Since last year’s 12.5% tax increase, law enforcement authorities have seized millions of illegal cigarettes, tons of loose leaf tobacco and destroyed dozens of dozens of hectares of illegal tobacco crops including:
•NSW Police seizure of nearly 15,000 packets of alleged illegal cigarettes during raids on retailers in Sydney’s south in August 2015.
•Victoria Police seizure of 14 pallets of alleged illicit tobacco products in Melbourne’s western and northern suburbs in July 2015.
•Seizure and destruction of illegal tobacco crop in rural Victoria in May 2015 by Australian Federal Police and Victoria Police. Street value estimated at more than $1 million.
•March 2015 seizure and destruction of 32 hectares of alleged illegal tobacco plants in rural Victoria by Australian Federal Police and the Australian Tax Office.
•December 2014 interception of 12 tons of unmanufactured illegal tobacco in Hong Kong allegedly bound for Australia
•Australian Customs seizure of approximately 2.2 tonnes of undeclared loose tobacco in a sea cargo container that arrived at the Port of Melbourne from Vietnam in September 2014.
•Chinese Customs seizure in September 2014 of 3.92 tons of vacuum packed tobacco at Hai Cang Port allegedly bound for Sydney.
“We congratulate the work of the Australian Border Force, Australian Taxation Office, Australian Federal Police, and State Police to crack down on tobacco smuggling,” Mr Dowding said.
“But as the tobacco black market continues to grow in Australia, the government needs reassess the tax and regulatory measures which have created the environment for this insidious trade.”