As recognised by the World Bank,1 to address illicit tobacco requires effective action across the entire supply chain—not just at farms and ports of entry and with distributors, but also with wholesalers, retailers and individuals supplying informally to consumers.
Approaches to control illicit tobacco trade need to be subject to frequent review due to the inherently dynamic and adaptive nature of the illicit market. As emphasized in a report on tobacco tax administration and enforcement published by the International Monetary Fund,2 even in a single country, solutions that worked once might not be sufficient at a later date.
Australia is generally seen to be doing a good job at the national level of coordinating activities of federal agencies to minimise the volume of illicit tobacco coming into Australia.1,3 However, once that still-considerable volume of illicit tobacco does make it through the borders and farm-to-dealer distribution channels, it is more challenging to prevent, detect or prosecute its sale in retail outlets in Australia.
As recommended in a report released by the Australian Parliamentary Joint Committee on Law Enforcement which convened hearings at the end of 2019,4 an essential first step in addressing illicit tobacco is to ensure that Governments have effective regulatory control over who is wholesaling and retailing tobacco products in each state and territory.i
13A.9.1 Licensing of both wholesalers and retailers in every jurisdiction
All jurisdictions other than NSW and Victoria (which have both legislated but not yet commenced licensing schemes) require retailers of tobacco products to hold a licence,ii see Indepth 11B, Tables 11B.1 and 2.
Licensing schemes can:
- Remove dishonest sellers from the market
- Provide state health Departments with names and addresses of all wholesalers and retailers to enable rapid communication about changing laws and other requirements
- Provide funding for education, monitoring and enforcement programs;
- Provide powerful administrative enforcement options (e.g., licence conditions, licence withdrawal) which are less costly than legal action through the courts.
Monitoring and enforcement of laws pertaining to the sale of illicit tobacco needs to be overseen by a central statewide agency that has substantial law enforcement capacity and connection with national agencies involved in reducing illicit tobacco trade. Fees from a positive retail licensing scheme could cover the operational costs of such an agency.
Once Victoria and NSW have tobacco licensing provisions in place, the Australian Government could legislate to require licensed importers and distributors to only supply tobacco to licensed retailers. This would help the Australian Government with efforts to reduce distribution of illicit tobacco trade at the national level. The Government could, for instance, establish guidelines or regulations that specified the nature of transactions that distributors needed to avoid and which, if detected, could be further investigated. In line with recommendations in the WHO Protocol on Illicit Tobacco,5 the Government might for example, require importers or distributors to confirm:
- Customers hold the appropriate licensing to acquire tobacco products
- Bona-fides for first time customers, including whether customers have been black-listed by authorities
- Market of intended sale
- Quantities are not irregular or unusual volumes
- Market where product sold is usual market.
Payments in cash or kind would not be permitted.
13A.9.2 Requirements of an effectively enforced licensing scheme
To support effective enforcement, a licensing scheme requires:
- A Secretariat to oversee the scheme, ensure adherence to Government policy, to make the public aware of procedures for reporting illicit sales, and to report to the Government on performance
- Administrative officers to assess the suitability of individual applicants
- A system to collect information and fees
- Inspectorate of officers with appropriate training and authorization.
An inspectorate of officers with appropriate training and authorization could undertake routine monitoring of outlets deemed at high risk of non-compliance and to initiate and complete all the work involved in prosecutions. They could also collaborate with counterparts at the state and national level involved in the identification and prosecution of national distribution networks.
As is currently the case in the Northern Territory and Western Australia (and is under consideration in South Australia), tobacco wholesale licence holders could be required to provide the licensing authorities with details on sales volumes of each product they supply to retailers. This would greatly assist with efforts to reduce illicit tobacco trade, by enabling the inspectorate to detect supply chain leaks. Tracking changes in sales volumes over time would also allow the Government to assess the effectiveness of tobacco control strategies at the local, regional and state-wide level.
i In the Canadian province of Quebec, the entire supply chain is licensed including tobacco growers, transporters, manufacturers, those who store raw tobacco and/or final products. importers, wholesalers, retailers, as well as those in possession of manufacturing equipment. In Kenya, enforcement agents have the power to carry out inspections at any time and at any point in the supply chain, and may seize illicit products on the spot and bring immediate charges against offenders.
ii Provisions in Queensland come into place on 1st September 2024.
References
1. Dutta S. Confronting illicit tobacco trade: a global review of country experiences, in World Bank. 2019. Available from: http://documents.worldbank.org/curated/en/677451548260528135/pdf/133959-REVISED-2-v1-WBG-Tobacco-IllicitTrade-FINAL-v3-web.pdf.
2. Petit P and Nagy J. How to design and enforce tobacco excises How-to notes. Washington DC: International Monetary Fund, 2016. Available from: https://www.imf.org/external/pubs/ft/howtonotes/2016/howtonote1603.pdf.
3. 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.
4. Parliamentary Joint Committee on Law Enforcement. Illicit tobacco. Canberra: Parliament of Australia, 2020. Available from: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Law_Enforcement/IllicitTobacco46th/Report.
5. Conference of the Parties to the WHO Framework Convention on Tobacco Control. Protocol to Eliminate Illicit Trade in Tobacco Products. World Health Organization Geneva 2015. Available from: https://fctc.who.int/publications/i/item/9789241505246.