Engaging in illicit trade in tobacco is a criminal offence. Associated activities of intimidation and property damage by rival criminals threaten public safety. This section outlines four of the main reasons why illicit trade needs to be addressed from a public health perspective.
- Illicit trade in tobacco causes disease and premature deaths.
- The most disadvantaged Australians are most affected by illicit trade in tobacco.
- Reducing illicit trade in tobacco products increases revenue flow to Governments, benefitting the Australian population.
- Reducing illicit trade in tobacco reduces opportunities for the tobacco industry to frighten policy makers about effective tobacco control policy.
13A.1.1 Illicit trade in tobacco causes disease and premature deaths
All tobacco products are dangerous to human health, including those produced and sold in compliance with all tobacco control and excise/customs laws. However, illicit trade in tobacco harms individual and population health in additional ways.
The price of fully taxed tobacco products increased substantially in Australia over the ten years since 20131 and this has been associated with a major decline in consumption and in the proportion of Australian adults smoking2,3—from 15.1% of adults smoking daily in 2013 to 12.8% in 2019.2 Even greater declines in consumption and smoking prevalence likely would have occurred in Australia over that period had it not been for the availability of illicit trade in tobacco. By increasing the affordability and sometimes also the availability of tobacco products, illicit trade in tobacco increases preventable morbidity and mortality.
Selling tobacco products to young people under the age of 18 is illegal in Australia and constitutes a form of illicit trade in tobacco. Selling a packet of cigarettes to a minor could have extremely serious consequences for that young person. Owning a packet of cigarettes greatly increases the number of cigarettes a person is likely to smoke. Experts in addiction science estimate that young people show signs of dependence on tobacco-delivered nicotine after smoking as few as 100 cigarettes4 or after smoking for as short a time as a single month.5 The more cigarettes a young person smokes, the more likely they are to become regular long-term adult cigarette consumers.6 The more heavily and the earlier a person starts smoking, the more likely they are to develop and die prematurely from a smoking-related disease.7
13A.1.2 The most disadvantaged Australians are most affected by illicit trade in tobacco
Illicit cigarettes generally sell for considerably less than their tax-paid equivalents. They inflict the greatest harm to the most price-sensitive population group. The lower tobacco price encourage consumption, undermining the power of tax increases to encourage disadvantaged individuals to cut consumption or quit altogether.8,9,10 Smokers from disadvantaged backgrounds who continue to smoke are disproportionately impacted by the health, social and financial costs of tobacco use, including higher rates of premature death.11,12,13,14
13A.1.3 Reducing illicit trade in tobacco products increases revenue flow to Governments, benefitting the Australian population
Illicit trade in tobacco reduces revenue from federal customs duty that would otherwise flow to the Australian Government, and from there, to programs and services that provide support and care to many Australians. The Australian Taxation Office (ATO) estimated that illicit tobacco equivalent to approximately $6.28 billion in potential tobacco excise attempted to enter the Australian market in 2022–23.15 Taking into account illicit tobacco confiscations ($3.57 billion), the net tobacco duty tax gap—illicit tobacco that entered the Australian market undetected—was estimated at $2.71billion. Expressed as a percentage of the total potential tobacco market, illicit tobacco represented 14.3% of total consumption in 2022–23, almost triple the the estimated percentage gap in 2016–17 (5.4%)—see Figure 13A.1.1. (See also Section 13A.5.2)
The sale of illicit products without payment of goods and services tax (GST) also reduces revenue that would otherwise flow to state and territory governments.16
13A.1.4 Reducing illicit trade in tobacco reduces opportunities for the tobacco industry to frighten policy makers about effective tobacco control policy
The tobacco industry has repeatedly used inflated estimates of the extent of illicit trade in various countries to campaign against tobacco tax increases and to misinform public opinion.17,10 (See also InDepth 13A.3). By accurately measuring and better controlling illicit trade in tobacco, governments reduce industry’s ability to distort policy priorities.
The National Tobacco Strategy 2023–2030 released in September 2023 gives high priority to effectively monitoring illicit trade in tobacco.18
‘Effective monitoring of the tobacco supply chain at all stages will help identify the points at which illicit tobacco activity emerge and how the supply chain can be better secured to prevent infiltration. Evidence obtained through monitoring can also inform options to deter participation in illicit tobacco trade, such as severe penalties for those involved and other dissuasive law enforcement measures. Investment in research and evaluation in this area is necessary to help address gaps in enforcement and guide the development of a nationally consistent and evidence-based approach to tobacco control compliance and enforcement.’ (page 11)
‘Implementing and enforcing strong measures to control illicit tobacco trade can enhance the effectiveness of high tobacco taxes and other tobacco control policies… strong surveillance, enforcement and fines across all chains are warranted.’ 18 (page 23)
References
1. Scollo M, and Bayly, M. 13.3 The price of tobacco products in Australia, in Tobacco in Australia: Facts & issues. In Greenhalgh E, Scollo, MM and Winstanley, MH, Editor Melbourne: Cancer Council Victoria; 2022. Available from: https://www.tobaccoinaustralia.org.au/chapter-13-taxation/13-3-the-price-of-tobacco-products-in-australia.
2. Australian Institute of Health and Welfare. Data tables: National Drug Strategy Household Survey 2019 - 20. Tobacco smoking chapter, Supplementary data tables. Canberra: AIHW, 2020. Available from: https://www.aihw.gov.au/reports/illicit-use-of-drugs/national-drug-strategy-household-survey-2019/data.
3. Australian Institute of Health Welfare. National Drug Strategy Household Survey 2019. Canberra: AIHW, 2020. Available from: https://www.aihw.gov.au/reports/illicit-use-of-drugs/national-drug-strategy-household-survey-2019.
4. Purcell K H-JS. 5.11 Accessibility of tobacco products to young smokers, in Tobacco in Australia: Facts & issues. Melbourne: Cancer Council Victoria; 2019. Available from: https://www.tobaccoinaustralia.org.au/chapter-5-uptake/5-11-accessibility-tobacco-products-young.
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7. Scollo M, Greenhalgh, EM. 17.3 The economic rationale for intervention in the tobacco market, in Tobacco in Australia: Facts & issues. Scollo MM WM, Greenhalgh, EM, Editor Melbourne: Cancer Council Victoria; 2020. Available from: https://www.tobaccoinaustralia.org.au/chapter-17-economics/17-3-the-economic-rationale-for-intervention-in-the-tobacco-market.
8. International Agency for Research on Cancer. Chapter 8. Tax avoidance and tax evasion, in Effectiveness of tax and price policies for tobacco control. Lyon, France: IARC; 2011. Available from: http://www.iarc.fr/en/publications/list/handbooks/.
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10. National Research Council and Institute of Medicine. Understanding the U.S. Illicit Tobacco Market: Characteristics, Policy Context, and Lessons from International Experiences. Committee on Law and Justice, Division of Behavioral and Social Sciences and Education and Board on Population Health and Public Health Practice, Institute of Medicine, Washington, DC 2015. Available from: http://www.nap.edu/catalog/19016/understanding-the-us-illicit-tobacco-market-characteristics-policy-context-and.
11. Colman G and Remler D. Vertical equity consequences of very high cigarette tax increases: if the poor are the ones smoking, how could cigarette tax increases be progressive? , Cambridge, Massachusetts: National Bureau of Economic Research, 2004. Available from: http://www.nber.org/papers/w10906.
12. Remler D. Poor smokers, poor quitters, and cigarette tax regressivity. American Journal of Public Health, 2004; 94(2):225–9. Available from: http://www.ajph.org/cgi/reprint/94/2/225
13. Remler DK. Already high tobacco taxes are still a burden on low-income households. Tob Control, 2020. Available from: https://www.ncbi.nlm.nih.gov/pubmed/32719010
14. Spurgeon D. Sharp rise in sales of untaxed cigarettes in Canada threatens public health. British Medical Journal, 2007; 334(7601):974. Available from: http://www.bmj.com/cgi/content/full/334/7601/974-c
15. Australian Taxation Office. Tobacco tax gap: latest estimates and findings. Canberra 2024. Last update: 31 Oct 2024; Viewed 6 Feb. Available from: https://www.ato.gov.au/about-ato/research-and-statistics/in-detail/tax-gap/q-z-tax-gaps/tobacco-tax-gap/latest-estimates-and-findings.
16. Scollo M. 13.0 Introduction, Chapter 13: The pricing and taxation of tobacco products in Australia, in Tobacco in Australia: Facts & issues. Bayly M, Scollo MM, Winstanley MH, Editor Melbourne: Cancer Council Victoria; 2022. Available from: https://www.tobaccoinaustralia.org.au/chapter-13-taxation/13-0-introduction.
17. Rowell A, Evans-Reeves K, and Gilmore AB. Tobacco industry manipulation of data on and press coverage of the illicit tobacco trade in the UK. Tob Control, 2014; 23(e1):e35-43. Available from: http://www.ncbi.nlm.nih.gov/pubmed/24614041
18. Government of Australia. National Tobacco Strategy 2023–2030. 2023. Last update: Viewed Available from: https://www.health.gov.au/sites/default/files/2023-05/national-tobacco-strategy-2023-2030.pdf.