The tobacco market includes both legal and illicit tobacco. We estimate the total tobacco market to be 9,384 tonnes in 2021–22, and it has contracted by 37% since 2016–17.
Over this period, increasing excise rates drove up the amount of tobacco duty paid. The total duty paid reached $12.7 billion in 2021–22. We estimate a further $2.3 billion was evaded from illicit tobacco reaching the market.
The Illicit Tobacco Task Force (ITTF), led by the Australian Border Force (ABF), work across several government agencies to combat this illicit tobacco marketExternal Link. Illicit tobacco includes international imports and domestically sourced tobacco. The ATO is responsible for excise duty payable on domestically grown and/or manufactured tobacco. ABF is responsible for the excise equivalent duty payable on imported tobacco and tobacco products.
Together in 2021–22, we seized the highest amount of illicit tobacco ever recorded. Despite these efforts and in contrast to a shrinking market, illicit tobacco is increasing, almost tripling to over 15% of the market.
For 2021–22 we estimate a net gap of 1,466 tonnes. This is the amount of illicit tobacco undetected in the Australian market. This represents a net gap of 13.1% of the total estimated tobacco market. The duty value is $2.3 billion:
- $1.9 billion duty was evaded through illicit importation
- $0.4 billion was evaded through illicit domestic production.
We estimate a gross gap of 3,255 tonnes, or 29.1%. This is the amount of illicit tobacco that attempted to enter the Australian market. It includes the tobacco seized and the amount undetected that made to market.
Note: Vapes, e-cigarettes and other similar items, including those containing nicotine, are not subject to excise duty and are not part of the tax gap estimate.
Table 1 shows the revenue impacts of these events over the last 6 years.
Element | 2016–17 | 2017–18 | 2018–19 | 2019–20 | 2020–21 | 2021–22 |
|---|---|---|---|---|---|---|
Duty paid ($m) | 10,612 | 11,914 | 12,147 | 12,781 | 14,264 | 12,659 |
Gross gap – illicit tobacco attempted to enter the market | 980 | 1,310 | 1,744 | 2,118 | 3,991 | 5,203 |
Seizures – Illicit tobacco seized before entering the market ($m) | 359 | 473 | 708 | 784 | 2,090 | 2,860 |
Net gap – undetected illicit tobacco that made it to market ($m) | 621 | 837 | 1,036 | 1,334 | 1,901 | 2,343 |
Potential tobacco market – all legally imported and attempted illicit tobacco supply in the absence of government intervention | 11,592 | 13,224 | 13,891 | 14,899 | 18,255 | 17,862 |
Net gap (%) | 5.4 | 6.3 | 7.5 | 9.0 | 10.4 | 13.1 |
Gross gap (%) | 8.5 | 9.9 | 12.6 | 14.2 | 21.9 | 29.1 |
Figure 1 shows the gross and net gap in percentage terms, as outlined in Table 1.
Figure 1: Gross and net tobacco tax gap percentages, 2016–17 to 2021–22