loading
Industry News
Home  > News  > Industry News  > 

Australia is set to lose A $5 billion in tax revenue as a result of a surge in illegal tobacco sales and e-cigarettes

Australia is set to lose A $5 billion in tax revenue as a result of a surge in illegal tobacco sales and e-cigarettes

2023-04-12

Supermarket and petrol station bosses have warned the federal government faces a budget shortfall of up to A $5 billion as smokers switch to illegal tobacco, counterfeit cigarettes and e-cigarettes, slump in tobacco sales leads to the loss of tobacco excise duties and uncollected goods and services tax.


Tobacco sales in independent supermarkets, petrol stations, convenience stores and corner shops have fallen sharply as the soaring price of legal tobacco and smokers looking to save money amid cost-of-living pressures have encouraged demand for illegal, counterfeit and loose tobacco known as chop-chop, according to Australian media.


The popularity of contraband e-cigarettes has also deprived legitimate retailers of sales, which in turn, combined with a huge increase in illicit tobacco, has resulted in the loss of tobacco excise and goods and services tax.


Ritchies, one of Australia's largest independent supermarket chains, recently laid bare the potential threat to the exchequer in a presentation two weeks ago to its major food and grocery suppliers -- estimated by the Australian Association of Convenience Stores, The threat of this loss is as high as A $5 billion.


Fred Harrison, Ritchies' chief executive, told suppliers in a confidential briefing that tobacco sales across the company's network of 75 supermarkets were down A $1.2m a week compared with the same period two years ago. At a meeting of suppliers held on 30 March, Mr Harrison revealed that his chain's total sales fell by 2.97% between July 2022 and February 2023, 90% of which was caused by a slump in tobacco sales.


"This is because of illegal tobacco. People are buying illegal tobacco, e-cigarettes, e-cigarettes, and e-cigarettes are crazy." Mr. Harrison said.


"E-cigarettes are a big problem in Australia at the moment and most of them are illegal. People are turning to loose tobacco, smuggled tobacco and e-cigarettes rather than paying A $50 for a pack of cigarettes."


Australia's biggest supermarket chain Woolworths revealed a 15 per cent fall in tobacco sales in its most recent half-year results, while rival Coles said its tobacco sales had weakened.


Tobacco taxes go up twice a year, in March and September. The average price of a pack of cigarettes has risen rapidly to almost A $50 as inflation soars at a time when cost-of-living pressures are tightening household budgets. Smoking is proving to be a costly habit for those who refuse to quit in order to protect their health and wealth, and many are now being attracted to cheaper forms of tobacco, led by illegal tobacco that evades excise duty, GST and other corporate taxes.


Not only are retailers losing sales, but the federal government is also losing out in excise and goods and services taxes as criminal organisations dump illegal tobacco on the market, much of it smuggled into Australia, while most people also buy illegal vaping products from various underground channels as well as social media.


"The federal government has probably missed out on about A $4bn of GST, they've been too slow to respond," Mr Harrison said.


Theo Foukkare, chief executive of the Association of Convenience Stores of Australia, said the surge in illicit tobacco (including bulk and contraband tobacco imported from Asia) and tobacco smuggling had saved the federal government and the Australian Tax Office between $1.8bn and $3.5bn a year in tobacco excise taxes.


Forkale represents the A $10bn petrol station and convenience store industry and 6,500 members, including national retailers such as 7-Eleven, BP, Ampol and Caltex, which derive about 36 per cent of their retail revenues, excluding fuel, from tobacco sales.


Over the past three years, tobacco sales have fallen about 5 percent, he said.


Prices have risen sharply, driven by illegal operators and underground networks of vaping providers.


"Our independent research confirms that, conservatively, the e-cigarette market in Australia is worth A $2 billion, of which around 90 per cent is currently sold on the black market through retail or storefront sneaking sales, online retailers and social media."


Mr Forkale said he had taken his concerns to the state and federal levels of government, raising the issue of the proliferation of counterfeit and illegal tobacco and the loss of excise duties and tax revenue.


"We have spent a lot of time working with the previous and current (federal) governments and I have personally met with the Treasury on a number of occasions to outline the overall impact and the current forward (budget) estimate of the impact is A $1.7 billion, which includes the loss of GST plus import duties and corporate tax.


"When you combine that with the approximately 3.5 billion lost in illicit tobacco excise taxes, you have five billion lost that are not within the control of the government, that are actually run by organized criminals."


A recent parliamentary Joint Committee on Law Enforcement inquiry into illicit tobacco found that price-based incentives to make tobacco less affordable through high tax rates are reducing smoking rates.


However, a negative consequence of these high taxes is that some tobacco users try to avoid these taxes by buying illegal tobacco that is not taxed.


"Essentially, the illicit tobacco market is driven by these people who are trying to avoid Australia adopting price-based incentives to increase taxes in order to reduce tobacco use. The report submitted by the Ministry of Health says that because illicit tobacco is cheaper, it directly affects the effectiveness of price-based public health policies aimed at reducing smoking rates, "the report said.


It's also a headache for the ATO. The ATO regularly conducts "Tax gap" studies to estimate the difference between what the ATO would charge and what it would have charged if each taxpayer had fully complied with the tax laws. The Australian Taxation Office estimates that the net tax shortfall for 2017-18 is 5%, or 647m, far less than the 2bn claimed by the tobacco industry.


However, a recent report by the Australian Taxation Office said total tobacco taxes in 2020-21 amounted to $14.3 billion, with an estimated $1.9 billion evaded by illicit tobacco entering the market.


"We estimate a net shortfall of 1,234 tonnes in 2020-21. This is the amount of undetected illicit tobacco on the Australian market. The tariff value is 1.89 billion, "the ATO report said. E-cigarettes, e-cigarettes and other similar items, including those containing nicotine, are not subject to excise duty and are not part of the tax gap estimate, but the switch by smokers from tobacco to e-cigarettes results in a loss of government revenue.


Chat Online
Chat Online
Leave Your Message inputting...
Sign in with: