Waking up to the reality of tobacco's black market

There's a website called Tobacco in Australia: Facts and Issues which is written by a few anti-smoking activist-academics. It provides lots of tobacco-related statistics and a bit of editorialising. 

The website has a whole section devoted to criticising "industry estimates of the extent of illicit trade in tobacco". It is an article of faith in tobakko kontrol that industry-commissioned research into the illicit trade is a tissue of lies, despite the industry having a lot more skin in the game than anti-smoking activists when it comes to tackling black market tobacco. Industry figures are routinely portrayed as being vast exaggerations designed to scare governments away from excessive taxation and regulation.

 

As has occurred in New Zealand¹ and the UK²,the major tobacco companies operating in Australia have commissioned the production of many reports over the past 15 years claiming alarmingly high estimates of the extent of illicit trade in tobacco in Australia.^3-6

 

Perhaps that's because the extent of the illicit trade in these countries is alarmingly high?   

 

Industry estimates suggest that illicit tobacco consumption as a percentage of total consumption increased from 11.8% in 2012 to 23.5% of the total tobacco market in 2022. This contrasts to the 2022 estimate from the Australian Taxation Office of 14.3%.

 

Perhaps it's the Australian Taxation Office that is wrong?

 

Industry figures are usually based on empty pack surveys which most governments can't be bothered to conduct. The authors of Tobacco in Australia try to debunk empty pack surveys on the basis that...

 

People most likely to buy packs originating from overseas—being travellers, recent migrants and international students or special visa workers—are much less likely to be motorists and much more likely to be walking and using public transport. The packs they use are therefore much more likely to enter the litter stream in public places than are packs used by cigarette consumers who do not travel frequently overseas.

 

Right. So all those packets of Manchester and Top Gun, which are not legally sold in most countries, are all being brought in by tourists - tourists, who by the way, are limited to bringing in no more than 50 cigarettes by law. Not packs of cigarettes. Cigarettes.  

 

If that doesn't sound very plausible, don't worry because...

 

Between 2015 and 2022, estimates of the extent of illicit tobacco used in Australia prepared by the Australian Taxation Office were consistently substantially lower than those included in the reports produced for tobacco companies by KPMG LLP.

 

Who you gonna trust? A government agency or consultancies commissioned by the tobacco industry?

 

As it turns out, you should trust consultancies commissioned by the tobacco industry. Last October, the Australian Taxation Office put out a statement saying that its estimates of the tobacco tax gap are "unreliable" and that the real figures must be "significantly higher".

 

This year, the ATO has performed its traditional analysis on the total tobacco gap using the existing channel-based bottom-up method. However, preliminary data from a University of Queensland research project that is looking at the biomarkers of tobacco leaf consumption in samples of waste water throughout Australia suggests that the total tobacco market and therefore the total illicit market is significantly higher than what we have previously estimated.

With this information, we now assess this tobacco tax gap estimate as unreliable and are undertaking a review of the methodology. We caution using this information as it is no longer a sufficiently credible or meaningful estimate of the illicit tobacco market in Australia.

 

The ATO's most recent estimate says that 25% of Australia's tobacco market is illicit. That is still a huge proportion but, as it now admits, it is an under-estimate. 

 

According to Australia's Illicit Tobacco and E-cigarette Commissioner, in a report published late last year, the real figure is between 50% and 60%. This is higher than the estimate of 39.4% from the industry-funded FTI Consulting report. So much for the industry exaggerating the scale of the problem!

 

Someone should delete this section of the Tobacco in Australia website, but I'm glad they haven't because it stands as a testament to a more innocent age, before the firebombings and murders began.

 

A number of academic papers, reports produced by US government research agencies, statements by political parties and research services and newspaper articles, allege that powerful and dangerous criminal gangs and terrorist groups are involved in counterfeiting activities on a massive scale. 

 

.... Such reports have been embraced enthusiastically by think-tanks with a political agenda of keeping taxes very low. The tone of these reports is often highly emotive and alarmist, and are consistent with in the interests of tobacco companies to ‘talk up’ the problem of illicit trade in general and counterfeit cigarettes in particular.

 

Imagine thinking that dangerous criminal gangs could be involved in the illicit tobacco trade on a massive scale! How "alarmist"!

 

One such dangerous criminal has just been arrested in Iraq...

 

In Australia, Hamad’s crew were busy waging a relentless turf war for control of Australia’s multibillion-dollar illicit tobacco trade, a battle involving dozens of firebombings and the gunning down of business and personal rivals. 

 

He's now in prison, but the illicit trade remains and will continue as long as the government creates demand with insanely high cigarette taxes. A tobacco store in Melbourne went up in flames this morning.

Legal sales of tobacco halved between 2022/23 and 2024/25, mirroring a similar decline in the UK. The only difference is that HMRC has not yet admitted that its own tobacco tax gap estimates are hopelessly and demonstrably wrong.   

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