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Government losing up to $182m over illicit tobacco

MEDIA RELEASE

SUNDAY, JULY 22, 2018


Government losing up to $182m as illicit tobacco issue lights up

There is up to NZ$182 million that the New Zealand Government could recoup from illicit tobacco. Research conducted by KPMG’s UK firm highlighted in their Illicit Tobacco in New Zealand 2017 Full Year Report has revealed that illegal tobacco – as a percentage of total tobacco consumption was around 9% in 2017. KPMG in the UK estimates that if this illicit tobacco had been sold legally, it would have generated about NZ$182 million in tobacco excise for the Government.

Imperial Tobacco New Zealand’s General Manager, Sam Abbott said that closer monitoring and enforcement both at the border and in retail is required to stop illegal products entering the market.

“We believe the aggressive 8 years of consecutive tobacco excise increases have contributed to this alarming figure. The attractiveness of the illicit market will continue to grow over the next two years, as further legislated annual 10% increases on tobacco excise drive the legitimate market retail prices higher,” said Mr Abbott.

In Australia, prior to the implementation of standardised tobacco packaging, illegal tobacco also measured by KPMG UK was about 11.5% and is currently about 15%. However, the Australian Border Force, the Australian Taxation Office and other law enforcement agencies have recently started to make significant inroads into cracking down and disrupting the organised crime groups involved.

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“We are open to discussion with all government agencies on further enforcement activity and the current tobacco excise evaluation by the Ministry of Health. This is a problem that can no longer be ignored with the potential of a revenue boost to Government. We commend the Government Budget announcement to tackle illicit drugs and encourage the Government to include illicit tobacco into their strategy so that it can be detected and dealt with at the border.”

The KPMG LLP report was commissioned by Imperial Tobacco New Zealand and is available in full HERE

Media contact: Louise Evans McDonald, Corporate Affairs Manager, Imperial Tobacco NZ Limited, Ph 027 4962448 email: louise.evansmcdonald@nz.imptob.com

KPMG Illicit Tobacco in New Zealand Full Year 2017 report highlights:
9.2% of total consumption (or 191,327 kg) was estimated to be illicit.This is triple the 2015 estimate of 2-3% stated in the Ministry of Health’s consultation document[1] “New Zealand and the Protocol to Eliminate Illicit Trade in Tobacco Products”.
If this 191,327 kg of tobacco had been consumed legally, it would have represented an estimated excise value of up to NZ$182 million, at the current excise rate.
Contraband consumption accounted for the majority at around 79% (151,134 kg) of total illicit consumption.
Flows of Australian, South Korean and Chinese labelled packs account for the majority of non-domestic product flowing into New Zealand.
Unbranded tobacco (home grown tobacco above the current allowable limit of 15 kg[2]) was estimated at around 21% (40,000 kg) of total illicit consumption.The legal home grown market is estimated to be a further 49,930 kg.
Counterfeit tobacco represented a small proportion of total illicit consumption at around 0.2% (0.4 thousand kg).


Note to editors:
KPMG in the UK undertakes economic analysis, commissioned by the tobacco industry, in a variety of jurisdictions. The OECD considers the methodology of KPMG the “most authoritative assessment of the level of counterfeit and contraband cigarettes” in the EU. The ‘Illicit Tobacco in New Zealand’ report was prepared by KPMG LLP in the UK and is an independent piece of work which gives a reliable insight into the level of illegal tobacco consumption. It was commissioned by Imperial Tobacco New Zealand Limited. KPMG recognises the wider public policy context within which governments decide regulatory and fiscal changes for the tobacco industry, and that the analysis in this report only considers one aspect. KPMG expresses herein no view, nor makes any recommendation, in relation to future policy for the industry in this regard.

[1] New Zealand and the Protocol to Eliminate Illicit Trade in Tobacco Products 2015 Consultation, (Page 4 “Problem Definition”)
[2] The Customs & Excise Act 2018 amended the personal allowance exemption for manufactured home grown tobacco from 15kg to 5kg (Customs & Excise Act 2018 s67(5))


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