13A.5.1 Australian reports on seizures by government agencies
Reports on seizures of tobacco products by the Australian Border Force (ABF) since 2006–07 in annual reports1-7 are set out in Table 13A.5.1 and Figure 13A.5.1 below. In Table 13A.5.1, to estimate the size of the illicit tobacco market, volumes of loose tobacco (originally measured in tonnes) have been converted into equivalent numbers of cigarette sticks by assuming that an average of 0.8 grams of loose tobacco was equivalent to one stick.
The Australian Taxation Office publishes outcomes of the illicit tobacco enforcement activities undertaken by the multi-agency Illicit Tobacco Taskforce (ITTF), established in July 2018—see Section 13A.8.3. The number of tobacco seizures, quantity of tobacco, and estimated excise duty value of the seized tobacco, and associated convictions, is reported in Table 13A.5.2.
13A.5.2 Tobacco tax gap
The Australian Taxation Office released an independent assessment of the extent of use of illicit tobacco in Australia in October 2022.8 The ATO used a 5-step model-based bottom-up method to estimate the tobacco tax gap.9
Step 1: Estimate illicit tobacco arriving through importation
Step 2: Estimate the size of domestic chop-chop cultivation
Step 3: Analyse the licensed warehouse system
Step 4: Compare total illicit amounts to legal clearances
Step 5: Deduct seizures to determine net gap
The findings of the ATO’s latest independent assessment of the extent of use of illicit tobacco in Australia is presented in Table 13A.5.3. There was $5.203 billion in potential lost excise revenue in 2021–22, including seized illicit tobacco. The lost excise revenue from illicit tobacco that did enter the Australian market was estimated to total $2.3 billion 2021–22 and $2.7b in 2022–23. This compares to the $3.4b claimed by the industry-funded FTI Consulting report for 202210 –see Section 13A.3.2.
13A.5.2.1 Limitations of theoretical tax
The ATO acknowledged that illicit tobacco smokers may smoke less if they must pay the higher legal price that includes excise duty. This would affect the amount of duty recoverable if the illegal market were eliminated.
The gross gap refers to illegal tobacco entering the market, including tobacco seized by authorities. If all efforts to prevent illegal tobacco stopped, the same volume of illicit tobacco would likely exceed current consumer demand. Earnings would then plummet, making the provision of illicit tobacco less appealing. If the same quantity of tobacco entered the market legally, volume would drop. This is because excise duty reduces profitability. Legal importations have fallen during the previous six years.
13A.5.3 Estimates of illicit tobacco use or purchase from the National Drug Strategy Household Survey
The National Drug Strategy Household Survey (NDSHS) is a national representative survey of Australians, and collects information about awareness and use of illicit tobacco. Findings from the 2022–23 NDSHS11 are presented in below.
Table 13A.5.4 shows that the proportion of people who currently smoke aged 14 years or older who were aware of unbranded (chop-chop) tobacco significantly increased from 34.1% in 2019 to 43.3% in 2022–23. Current use of unbranded tobacco among current smokers was 1.8 times higher in 2022–23 compared to 2019. Among those current smokers who were aware of unbranded tobacco, current use increased by 44% from 14.4% in 2019 to 20.7% in 2022–23.
Use and awareness of manufactured illicit tobacco, that is, packs that do not comply with Australia’s plain packaging and graphic health warning requirements, has also increased since 2019. Figure 13A.5.2 shows that in 2022–23, one in five current smokers had seen packs without plain packaging in the past 3 months, up from 15.2% in 2019. The proportion who had purchased such a pack in the past 3 months also increased from 6.2% to 10.2%. As a proportion of the total Australian population aged 14+ years, 1.4% had recently purchased a tobacco product without plain packaging.
Of current smokers who had recently purchased a product without plain packaging, approximately 39% had purchased 15 or more packs in the past 3 months (a minimum of one pack every 6 days), 31% had purchased 1 or 2 packs, and 17% had purchased 3 to 5 packs.12
Figure 13A.5.3 shows the usual place of purchase of packs that did not have plain packaging or graphic warnings, for current smokers who had made a purchase in the past three months. The proportion who usually purchased illicit tobacco from a tobacconist was 1.6 times higher in 2022–23 than 2019, increasing from 25.2% to 40.1%. An increase in the proportion purchasing from informal sellers also increased, while the proportion who usually purchased from a supermarket, convenience or grocery store decreased by one-third.
13A.5.4 Measuring changes in illicit tobacco use following plain packaging
A series of studies conducted to evaluate the effects of plain packaging in Australia used several ways to define and monitor use of likely illicit tobacco through small retail outlet monitoring and a national survey.13-15
The small retail outlet monitoring study14 examined changes in the availability of illicit tobacco in small mixed-business retail outlets in Victoria following the introduction of plain packaging in 2012 in Australia. Fieldworkers 1) requested a particular low-cost brand of cigarettes and then pressed the retailer for an ‘even cheaper’ brand, and 2) asked about the availability of unbranded (chop-chop) tobacco. The cheapest pack of cigarettes was bought and evaluated for compliance with Australian packaging regulations. Tax liabilities and recommended retail prices were compared to the price paid for the brand and pack size.
The percentage of packs purchased that were either non-compliant with Australian health warnings and/or suspiciously priced in pre-plain packaging was 2.2% (13/598 packs purchased). The percentages of packs that satisfied either or both requirements was 1.3% (4/297 packs purchased) in the implementation month and 0.6% (5/878 packs) in the three collection months after introduction. The availability of chop-chop was extremely rare both in implementation month (December 2012) and postimplementation (0.6%; n=2 and 0.6%; n=3, respectively). A follow-up study in tobacconists found very few offers to sell chop-chop tobacco (3.1%) in 2013.16
Using a national representative survey,13 illicit tobacco use was measured in four ways in 2012–2014, to assess changes in illicit tobacco use following the implementation of Australia’s plain packaging legislation. Participants were asked to give the brand name, pack size, price paid, and place of purchase, of the last cigarette they smoked.
- ‘Cheap whites: Nominated cigarette brands were examined against a list of ‘cheap white’ products produced specifically for the illicit market using the World Customs Organization Illicit Trade Report 2012 and reports by the international consulting company KPMG LLP. Cheap white cigarettes are made in one country and smuggled into other countries and sold on the illicit market.17 Names of Cheap white products included Dunstan, Jin Ling, Manchester, Modern, Regal, Sunlite, Timeless Time, Win, YunYan, Zhongnanhai, Nanjing, Su Yan, and Zig Zag
- International brands purchased at suspiciously low prices: Nominated cigarette brands were compared to list of frequently smuggled brands from the World Customs Organization.17 These brands included Benson & Hedges, Brooks, Camel, Craven A, Dunhill, Furongwang, Golden Eagle, LM, Lucky Strike, Marlboro, Mild Seven, Phillip Morris, Rothmans, Shuangxi, and 555.
Suspiciously low prices were defined as the reported price paid being 20% or more below the recommended retail price (RRP) for the pack for these brands.
- Purchase from informal sellers: that relatives or friends had purchased their cigarettes and reported purchase sources including ‘from someone selling independently and/or illegally (not at a store, shop, or other mainstream establishment, but perhaps at local markets, delivery service, door-to-door, in a pub, or just in the street)’.
- Unbranded illicit ‘chop-chop’ tobacco: Indirect and direct questions were used to define the use of unbranded illicit tobacco as indicating any of the following throughout the survey:
- Cigarette users were asked whether they currently smoked any other form of tobacco and, if so, which types: Some respondents mentioned unbranded tobacco.
- Cigarette users could also report ‘unbranded tobacco’ as their ‘current brand’, usual brand (the brand they smoked more than any other), or ‘another brand’ they frequently smoked.
- Those who said they did not know the brand name or refused to give it were directly asked whether it was unbranded tobacco.
- Reporting an unbranded tobacco or cigarette purchase in the past month through a direct question (“bought loose unbranded tobacco in a plastic bag that is known as chop-chop” or “bought unbranded or chop-chop tobacco that has already been rolled into cigarettes”).
Compared to pre-plain packaging, there were no significant increases in the plain packaging phase in use of "cheap whites" (<0.1%; OR=0.24, 95% CI 0.04 to 1.56, p=0.134); international brands purchased for 20% or more below the recommended retail price (0.2%; OR=3.49, 95% CI 0.66 to 18.35, p=0.140); or packs purchased from informal sellers (<0.1%). Unbranded illegal tobacco use was maintained at 3% (adjusted OR=0.79, 95% CI 0.58 to 1.08, p=0.141).13
13A.5.5 Estimates using publicly available data
More recently, a ‘top-down’ approach was used estimate the size of the illicit cigarette market in Australia using publicly available data.18
The study estimated the size of the illicit cigarette market by deducting formal net clearances from total consumption and expressed both as number of sticks and a percentage of the total market. The study authors used Euromonitor’s estimates of actual consumption (cigarette sticks) per year and clearance data posted online by the Department of Home Affairs (DOHA) in response to a request under Freedom of Information (FOI) provisions. They assumed the balance from this calculation was illicit tobacco consumption.
Illicit sticks = Actual consumption (sticks) – formal 'net' clearances FOI
They found that the illicit tobacco market share was 5.7% in 2015, 4.4% in 2016 i , 8.3% in 2017 and 6.6% in 2018. These estimates were closer to the ATO’s estimates and substantially lower than KPMG’s for Australia during the same period. The measurement of overall cigarette consumption, including the quantification of illegal cigarette penetration, conducted by Euromonitor, is subject to an over-dependence on its methodology. The available data of overall tobacco consumption is restricted solely to cigarettes, and does not account for roll-your-own tobacco use.
i The authors noted ‘this is the first year in which a restructure of the tobacco industry resulted in the cessation of cigarette production in Australia and the tobacco companies moving to fully supplying the market with imported finished sticks. In addition, the FOI data for 2016/17 also shows a combination of a fall in imports of some 500 million sticks with a further adjustment of 27 million sticks being taken out of domestic clearances. Therefore, this may mean the 2016 illicit estimate of 4.4 per cent should be higher and the 2017 estimate of 8.3 per cent lower.’
References
1. Australian Government Department of Home Affairs. Annual report 2017-18. Canberra: Australian Government 2018. Available from: https://www.homeaffairs.gov.au/reports-and-publications/reports/annual-reports.
2. Australian Government Department of Home Affairs. Annual report 2018-19. Canberra: Australian Government 2019. Available from: https://www.homeaffairs.gov.au/reports-and-publications/reports/annual-reports.
3. Australian Government Department of Home Affairs. Annual report 2019-20. Canberra: Australian Government 2020. Available from: https://www.homeaffairs.gov.au/reports-and-publications/reports/annual-reports.
4. Australian Government Department of Home Affairs. Annual report 2020-21. Canberra: Australian Government 2021. Available from: https://www.homeaffairs.gov.au/reports-and-publications/reports/annual-reports.
5. Australian Government Department of Home Affairs. Annual report 2021-22. Canberra: Australian Government 2022. Available from: https://www.homeaffairs.gov.au/reports-and-publications/reports/annual-reports.
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9. Australian Taxation Office. Tobacco tax gap: Methodology. Canberra 2022. Last update: Oct 2022; Viewed 21 Oct. Available from: https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Tobacco-tax-gap/?page=4.
10. FTI Consulting. Illicit tobacco in Australia, 2022 Full Year report United States: Philip Morris International, 2023. Available from: https://www.pmi.com/resources/docs/default-source/australia-market/illicit-tobacco-in-australia---2022-full-year-report.pdf?sfvrsn=93c497b6_2.
11. Australian Institute of Health and Welfare. National Drug Strategy Household Survey 2022–2023. Canberra: AIHW, 2024. Available from: https://www.aihw.gov.au/reports/illicit-use-of-drugs/national-drug-strategy-household-survey.
12. Australian Institute of Health and Welfare. Data tables: National Drug Strategy Household Survey 2022–2023 – 2. Tobacco smoking. Canberra: AIHW, 2024. Available from: https://www.aihw.gov.au/reports/illicit-use-of-drugs/national-drug-strategy-household-survey/data.
13. Scollo M, Zacher M, Coomber K, and Wakefield M. Use of illicit tobacco following introduction of standardised packaging of tobacco products in Australia: results from a national cross-sectional survey. Tobacco Control, 2015; 24:ii76-ii81. Available from: http://tobaccocontrol.bmj.com/content/24/Suppl_2/ii76.full
14. Scollo M, Wakefield M, and Bayley M. Availability in small retail outlets of unbranded illict tobacco before and after implementation of Australian plain packaging legislation. Tobacco Control, in submission.
15. Scollo M, Bayly M, and Wakefield M. Availability of illicit tobacco in small retail outlets before and after the implementation of Australian plain packaging legislation. Tobacco Control, 2015; 24:e45-51. Available from: http://www.ncbi.nlm.nih.gov/pubmed/24721966
16. Scollo M, Bayly M, and Wakefield M. Availability of chop-chop tobacco in Victorian tobacconists following introduction of plain packaging. [Letter]. Australian and New Zealand Journal of Public Health, 2014; 38(3):293-4. Available from: https://www.ncbi.nlm.nih.gov/pubmed/24890492
17. World Customs Organization. Illicit Trade Report 2012. Brussels, Belgium 2013. Available from: https://www.wcoomd.org/-/media/wco/public/global/pdf/topics/enforcement-and-compliance/activities-and-programmes/illicit-trade-report/itr_2012_en.pdf?db=web.
18. Preece R and Neher A. The extent of the illicit cigarette market in Australia: using publicly available data in a ‘top‑down’approach to estimation. World Customs Journal, 2020; 14(1):3-16. Available from: https://worldcustomsjournal.org/Archives/Volume%2014%2C%20Number%201%20(Apr%202020)/1897%2001%20WCJ%20v14n1%20Preece%20and%20Neher.pdf?_t=1586404485#:~:text=Illicit%20%25%20estimate&text=6.6%25-,Source%3A%20Authors.,for%20the%20period%20under%20analysis.