November 19, 2015

Illegal tobacco black market currently at 14.3 per cent

The amount of illegal ‘chop chop’ and cigarettes consumed in Australia represents 14.3 per cent of total tobacco consumption according to the latest Illicit tobacco in Australia report prepared by KPMG LLP in the UK.

The report is prepared for British American Tobacco Australia, Imperial Tobacco Australia and Philip Morris Limited. It calculates that if the Australian tobacco black market was sold legally the Federal Government would gain an estimated $1.42 billion in excise. Instead, the organised criminal groups who smuggle it into the country or grow it locally pocket all proceeds of the crime.

Around 2.5 million kilograms of illegal cigarettes and ‘chop chop’ is making its way through Australia’s borders and into smokers’ hands annually. A number of sizeable illegal tobacco crops have been discovered by authorities in Australia recently.

‘Chop chop’ now makes up 65 per cent of all illegal tobacco consumed in Australia and is commonly sold as finely cut loose leaf tobacco in 250 gram to half kilo bags or boxes of 100 pre-filled tubes with no labelling or health warnings.

The KPMG report showed that there had been a marginal decline in illegal tobacco of 0.2 percentage points, down from the record level of 14.5 per cent of total tobacco consumption reported six months ago.

The tobacco industry is pleased there have been a number of large-scale seizures in recent months and welcomes the Australian Border Force (ABF) strike team formed by the Federal Government recently to tackle illegal tobacco.

British American Tobacco Australia (BATA) spokesperson Scott McIntyre said illegal tobacco remains a serious nationwide problem that hurts legitimate retailers and deprives the government of billions of dollars in revenue.

“While we commend the government on the new ABF strike team, the industry believes the substantial growth in illegal tobacco is directly linked to the Federal Government’s annual 12.5 per cent excise increases which occur on 1 September,” Mr McIntyre said.

“These large excise increases and other excessive regulations fuel the black market and make it more lucrative for organised criminals to smuggle illegal tobacco into Australia.

“Hopefully the ABF strike team can help stamp out the illegal tobacco problem as it comes across the border. However more resources need to be deployed at the retail level for enforcement.

“Make no mistake illegal cigarettes come in branded packs, many without any health warnings and are often covered in a foreign language. They are obviously not plain pack compliant and hence those retailers caught selling it can be fined up to $360,000.

“Unfortunately despite large growth in the tobacco black market the Department of Health is yet to prosecute anyone even though the failed plain packaging policy has been in place for almost three years.”

The report shows that while the average price of a pack of legal cigarettes in Australia is around $22 due to the Federal Government’s excise system, in a lot of Asian countries similar packs are sold legally for one to two dollars.

“It becomes even more lucrative for organised crime gangs to smuggle illegal counterfeit or contraband cigarettes which can be purchased for as low as 20 cents a pack in some Asian countries,” Mr McIntyre said.

“Especially when the average illegal pack of cigarettes are sold for around $10 to $13 in Australia. That’s a huge profit margin for the crime groups who smuggle them in.

“The Australian Crime Commission (ACC) said in their most recent organised crime report that smuggling illegal tobacco is seen as a low risk, high profit activity. 

“We’re hopeful the new ABF strike team can change this and greatly increase the risk of those criminals getting caught.”

Consumption of Illicit tobacco products by category 2015

KPMG report highlights:

  • The report found total volume of tobacco consumed in Australia in the 12 months to June 2015 was 17.5 million kilos which is the same for the full year report in 2014.
  • It also shows that 2.5 million kilos consumed are illegal which equals 14.3 per cent of consumption.
  • If this 14.3 per cent was consumed in the legitimate market it would represent estimated $1.42 billion excise revenue for the government.
  • Contraband volumes declined 38 per cent in the 12 months to June 2015. Meanwhile, unbranded consumption increased 51 per cent and now accounts for 65 per cent of total illicit.
  • In the last 12 months June 2015 14.3% of total consumption was estimated to be illicit. This represented a marginal decline of 0.2 percentage points from 2014.

There were a number of illegal tobacco major seizures during by enforcement agencies during 2014-15:

  • In August 2014, police seized 500,000 cigarettes and 70 kilograms of loose tobacco in multiple raids across Sydney.
  • Australian Customs seized 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.
  • Coffs Harbour Police seized 13 bags containing a total of 276 kilograms of loose leaf tobacco in November 2014.
  • In December 2014, Hong Kong customs intercepted 12 tonnes of unmanufactured illegal tobacco in Hong Kong bound for Australia
  • The Australian Taxation Office, Australian Federal Police and Victoria Police seized and destroyed 32 hectares of illegal tobacco plants in Merrigum, Victoria.
  • In another joint operation between the ATO and police, an illegal tobacco crop in Undera, rural Victoria with an estimated street value of $1 million was destroyed in May 2015.
  • In June 2015, 47 tonnes of illegal loose leaf tobacco was shipped into Sydney in two containers from Indonesia and intercepted by Australian Border Force. Another shipment of 24 tonnes was seized by Indonesian authorities before it could be moved from Indonesia.

 

*Note to editors

KPMG undertakes economic analysis, commissioned by the tobacco industry, in a variety of jurisdictions. The OECD considers the methodology of KPMG the “most authoritative assessment of the level of counterfeit and contraband cigarettes” in the EU. The ‘Illicit Tobacco in Australia’ report was prepared by KPMG LLP in the UK and is an independent piece of work which gives a reliable insight into the level of illegal tobacco consumption. It was commissioned by BATA, Phillip Morris Limited and Imperial Tobacco Australia. KPMG recognizes the wider public policy context within which governments decide regulatory and fiscal changes for the tobacco industry, and that the analysis in this report only considers one aspect. KPMG expresses herein no view, nor makes any recommendation, in relation to future policy for the industry in this regard.


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