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Black-Market Tobacco Sidesteps $287 Million In Excise Tax

Year-on-year increases in consumption of illicit tobacco in New Zealand have seen illegal trade swell to 11.5% of the total market. If consumed legally, illicit products would have netted the Government $287 million in excise tax during 2019.

Independent research from KPMG UK has found consumption of illicit tobacco to total 230 tonnes in 2019. Sales of legal tobacco declined 5.2% for the year.

Kirsten Daggar-Nickson, Head of Legal & Corporate Affairs at Imperial Brands Australasia, said growth in illicit trade corresponded with the increased value of tobacco from years of excise hikes.

“We believe there is a clear pattern. Consumers who cannot afford tobacco are increasingly turning to the black market.

“New Zealand has very strict laws controlling the legal sale and supply of tobacco, but there’s 230 tonnes worth which is completely off the books. This is not about a few packs of cigarettes in the bottom of a suitcase, it is large-scale with increasingly sophisticated sales and distribution networks on the black-market.

“We maintain that a lot of money that can be made from the sale of illicit tobacco. Cigarettes in New Zealand retail at five to six times more than they do in China or Korea. That price differential is what turns a container load of smuggled tobacco into a $7 million cheque on the black market.”

In Australia – the only country in the Asia-Pacific region with higher cigarette prices than New Zealand – KPMG UK report that the illicit tobacco market now totals 3,080 tonnes, up 47.6% from 2018. The estimated excise value of the illicit market, if consumed legally, would have been $3.41 billion (AUD).

To combat illicit trade, the Australian government last year launched a multi-agency group for enhanced surveillance and enforcement. Sentences for smugglers and illegal cultivators of tobacco plants were also increased.

Dagger-Nickson said that while interceptions by New Zealand Customs have increased, they only represent a fraction of the total illicit trade market.

“Customs are starting to make some inroads. But they are vastly outnumbered and under resourced.

“The concern is that the situation in New Zealand could follow Australia which has far greater levels of illicit trade in tobacco as well as a sophisticated organised crime network that sustains it.”

The KPMG UK report was commissioned by Imperial Tobacco. The full report can be accessed here http://imperialbrandsplc.com/KpmgNZ_26_May_2020.pdf.

By the numbers – New Zealand’s illicit tobacco trade

  • Annual consumption of illicit tobacco at 230,100 kg. Sales of legal tobacco declined 5.2%.
  • If all illicit tobacco had been consumed legally, it would have represented an estimated excise value of $287.4 million.
  • Illicit tobacco totals 11.5% of all tobacco consumption in 2019, a 1.3 percentage point increase from 2018.
  • Illicit tobacco market comprised of unbranded / roll your own tobacco (57.7%), illicit manufactured cigarettes (41.5%), and counterfeit product (0.8%)
  • China (2.7%) and South Korea (2.5%) the largest sources of flows for illicit manufactured cigarettes into New Zealand.
  • Customs interceptions of illicit tobacco increased by 76% between 2018 and 2019.

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