Australia: Smuggling and Illicit Trade Threats

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Tax Rises Lead to Smuggling?

A common tactic of the tobacco industry, in Australia and elsewhere, is to claim that tax rises, advertising bans and plain (standardised) packaging will lead to increased tobacco smuggling.

“These arguments routinely seek common ground with government concerns by exaggerating the level of illicit tobacco trade in Australia. They also distract from expert recommendations for improved enforcement to reduce illicit trade,” according to ASH Australia. [1]

In its Senate Community Affairs Legislation Committee submission, Imperial claimed that the new law will create a "Counterfeiters’ Charter... aiding and accelerating the spread of counterfeit tobacco products and the trade in illicit tobacco to the detriment of the Australian economy".[2]

A 'Flawed' Analysis

A 2010 report [3] written by PriceWaterhouseCoopers as independent experts, commissioned by British American Tobacco (BAT) Australia, claimed that 12% of tobacco consumed in Australia was smuggled, costing $624 million in lost tax revenue.

ASH Australia [1] questioned this conclusion:

"Analysis of the report raises serious methodological flaws, such as failing to give a sample size or to define how the study defined users of unbranded tobacco. The analysis shows the report’s figure for illicit as a proportion of all tobacco trade is inconsistent with National Drug Survey findings and would give Australia a bigger proportion of illicit sales than the least-regulated countries in Africa and Eastern Europe… The PwC/BATA report’s figure of $624m in lost revenue is also regarded as an exaggeration - based on a consumption model on the usage patterns of illegal tobacco consumers, the preferred method of PwC because it captures purchases and use of all types of illegal tobacco. Statistics on smuggled tobacco seizures from the Australian Customs and Border Protection Service do not support this claim. The Customs Service 2008-2009 report shows around 169 tonnes of tobacco leaf and 50 million cigarette sticks with potential revenue of $70.5m were seized. A 2010 government media release notes that over the past three years Customs has seized 715 tonnes of tobacco, preventing excise evasion of around $277m."

Another similar report, again estimating damage to the Australian economy from tobacco smuggling, was published on 1 March 2011.[4] It was written by Deloitte and paid for by BAT Australia, Philip Morris and Imperial Tobacco Australia.

A BAT press release said: “A Deloitte report into illegal tobacco in Australia revealed taxpayers are losing out on almost $1.1 billion in excise revenue as the illegal tobacco market grows rapidly. The report estimated that 2.68 million kilograms of illegal tobacco products were sold in Australia during 2010, equivalent to 15.9% of the total legal tobacco market. Organised crime gangs are now the fourth largest tobacco player in Australia.” [5]

Industry Claims Plain Packaging Will Lead to Smuggling

The above Deloitte report suggested that plain packaging will lead to a further increase in tobacco smuggling:

"The increase in the trade of illicit tobacco has occurred concurrently with some material changes to the regulatory and taxation regime including [...]The federal government intends to legislate for the introduction of plain packaging of all tobacco products during the course of 2011."[6]

Just days later, BAT issued the following press release:

"British American Tobacco Australia today congratulated Customs and Border Protection on their hard work for seizing 2.5 million illegally imported counterfeit cigarettes in Brisbane. Unfortunately 2.5 million counterfeit cigarettes (equal to 2500 kg) is less than 1% of the total amount of illegal tobacco making its way into Australia each year."[7]

Australia's Home Affairs Minister Brendan O'Connor, responsible for customs, responded by accusing the powerful tobacco lobby of scaremongering to protect its commercial interests. "It is baseless to claim that one in six smokers [is] consuming illegally imported tobacco. Big tobacco regularly quotes from reports that it commissions itself - rather than the independent research - because independent research does not back its claims," he said.[8]

The companies' campaigning websites also claim that plain packaging will increase smuggling and illicit trade by making cigarettes easier and cheaper to counterfeit.

Counter Evidence

For public health counter arguments to these industry claims see Countering Industry Arguments Against Plain Packaging: It will Lead to Increased Smuggling

Industry Threatens to Flood the Country with Cheap Cigarettes

Following the announcement in 2011 that Australia would introduce plain packaging the following year, British American Tobacco Australia said that this would lead to a "flood" of half-price cigarettes. "British American Tobacco chief executive David Crow... said cigarette prices could be slashed in half as tobacco giants try to compete with black-market imports", according to a report in the Australian Daily Telegraph newspaper in December 2011.[9]


TobaccoTactics Resources

TCRG Research

Notes

  1. 1.0 1.1 Anne Jones and Stafford Sanders, Countering Tobacco Tactics, Action on Smoking and Health Australia, 2010, accessed 7 June 2011
  2. Imperial Tobacco, Submission to the Senate Community Affairs Legislation Committee for the inquiry into the Plain Tobacco Packaging (Removing Branding from Cigarette Packs) Bill 2009), April 2010
  3. PriceWaterhouseCoopers, Australia’s illegal tobacco market - counting the cost of Australia's black market, February 2010, accessed 7 June 2011
  4. Deloitte, Illicit trade of tobacco in Australia, February 2011, accessed 7 June 2011
  5. British American Tobacco Australia, Taxpayers lose $1 billion while criminals make millions, 1 March 2011, accessed 7 June 2011
  6. Deloitte, Illicit trade of tobacco in Australia p.38, February 2011, accessed 7 June 2011
  7. British American Tobacco Australia, Illegal tobacco haul a drop in the ocean, 10 March 2011
  8. Cameron Houston, Big tobacco lobby 'scaremongering', The Age, 22 May 2011, accessed 8 June 2011
  9. Joe Hildebrand and Kate Sikora, We'll flood the market with cheap tobacco, says British American Tobacco chief, Daily Telegraph, 17 May 2011, accessed 15 December 2011