Illicit tobacco can be defined as ‘any tobacco on which legally required duties and taxes have not been paid’.
In Australia illicit tobacco includes roughly processed tobacco (often referred to as ‘chop chop’) or manufactured tobacco products (either roll-your-own ‘RYO’ tobacco or ready-made cigarettes) produced either locally or smuggled from overseas.
Illicit manufactured products include those that are:
produced by registered trademark holders but diverted from the legal market;
counterfeited; or
produced specifically for the illicit market (often referred to as ‘cheap whites’ or ‘illicit whites’).
The Australian Government has not regarded illicit tobacco as a major problem to date. The most recent government-funded survey found that 4.9% of people who smoke in 2019 used unbranded tobacco at least occasionally – the same proportion who did so in 2010. Approximately 6.2% of people who smoke reported having purchased tobacco products in Australia without plain packaging, including 2% who had purchased 15 or more packs over the previous three months. The vast majority of people who smoke have either never seen tobacco products without plain packaging (84.8%) or have seen them but not purchased them 9%.
The tobacco industry has funded several reports with claims about the size of illicit tobacco trade in Australia. Critiques of these reports have highlighted numerous flaws in their methodology and show that tobacco industry figures for illicit tobacco contained in the reports are highly inflated compared to government figures on illicit tobacco use in Australia. Copies of these critiques and links to the original reports can be found on the Plain Facts website. The Australian Taxation Office now publishes its own estimates of the size of the illicit market as part of its Tax Gap Analysis initiative. Its latest estimate puts the net tax gap on tobacco excise and customs duty at 6.2% - considerably lower than the 19.3% claimed in the latest KPMG report (PDF).
Further information
For further information, on illicit trade, see the following sections from Tobacco in Australia: Facts & Issues:
Section 2.8 Tobacco consumption not captured in government or industry figures
Section 13.7 Avoidance and evasion of taxes on tobacco products.
Last updated October 2022.