Asia Illicit Tobacco Indicator 2017: Australia · The Asia Illicit Tobacco Indicator 2017 Report...
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Asia Illicit Tobacco Indicator 2017: Australia Prepared by Oxford Economics September 2018
Transcript of Asia Illicit Tobacco Indicator 2017: Australia · The Asia Illicit Tobacco Indicator 2017 Report...
Asia Illicit Tobacco Indicator 2017: AustraliaPrepared by Oxford EconomicsSeptember 2018
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DisclaimerThe Asia Illicit Tobacco Indicator 2017 Report (the “Report”) on the illicit tobacco trade in selected Asian markets (including Australia and New Zealand) has been prepared by Oxford Economics (OE). OE enjoyed academic freedom and full editorial control of the Report. We are grateful for the inputs and data received from public sector and industry stakeholders.
OE prepared the Report in accordance with specific terms of reference agreed between Philip Morris International Management SA, an affiliate of Philip Morris International (PM), and OE. Financial support for the Report was provided by PM. OE assume all responsibility for the Report analysis, findings, and conclusion. The terms of reference under which OE were engaged by Philip Morris International Management SA are detailed in the Asia Illicit Tobacco Indicator 2017 Methodological Overview Report, available to download via the following link illicittobacco.oxfordeconomics.com
| Australia Market Summary
33
Australia: Legal Domestic Sales
| Australia Market Summary3
1 Based on official statistics on the volume of tobacco clearances sourced from the Australian Treasury Department. A conversion rate of 0.775 grams per cigarette was applied to turn loose tobacco weight into cigarette equivalent, based on rates applied by the Australian Taxation Office.
2 Price per pack of 20 of the Most Sold Brand in October 2017, based on PM data. The Most Sold Brand in Australia consists of a pack of 40 cigarettes. The Australian pack price of 20 is therefore derived from a pack of 40 cigarettes.
Legal Domestic Sales:
17.0 bn cigarettes
Including RYO equivalent
Australia
Price:
AUD 22.0 USD 17.5
Australian Legal Domestic Sales of cigarettes and loose tobacco were estimated at nearly 17.0 billion cigarettes (or cigarette equivalents) in 2017, falling by 8.9% in comparison with 2016. This was driven by a 10.2% decline in sales of cigarettes, with loose tobacco sales falling by a more modest 1.4%.1
Manufactured cigarettes accounted for the majority of the tobacco market in 2017, with a share of nearly 84% of total Legal Domestic Sales. The legal market for cigarettes is composed almost exclusively of three international manufacturers (BAT, Imperial Tobacco, and PM), accounting for a combined market share of nearly 98%.
Australian cigarette prices continued to be amongst the highest in the world in 2017, costing AUD 22.0 (USD 17.5) per pack of 20 cigarettes based on the Most Sold Brand. This was above the equivalent price in all markets covered by the Asia Illicit Tobacco Indicator Report, including New Zealand, where the Most Sold Brand of cigarettes cost USD 16.0 per pack of 20 cigarettes in 2017.2
In comparison with other markets that account for significant non-domestic Inflows into Australia, the differential in price is more pronounced. For example, in 2017, the price of a pack of 20 of the Most Sold Brand of cigarettes in China and South Korea were USD 1.52 and USD 3.99 respectively, less than one-quarter of the equivalent price in Australia.
The price of the Most Sold Brand of cigarettes rose by 7.9% in 2017, underpinned by an increase in the Excise Tax rate, which was again subject to biannual index linked increases as well as a 12.5% annual hike. In September 2016, the Excise Tariff Amendment (Tobacco) Act 2016 was approved, scheduling an annual 12.5% Excise Tax increase for each year up to and including 2020.
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0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2017201620152014201320122011201020092008
0.25 0.260.33 0.33 0.360.35
0.530.61
0.70
0.46
AUD
per c
igar
ette
0
5
10
15
20
25
2017201620152014201320122011201020092008
Ciga
rette
s bn
% o
f Tot
al C
onsu
mpt
ion
AUD per pack of 20 cigarettes
Cigarettes sales bnRYO cigarette equivalent
AUD per pack of 20 cigarettes 25
20
15
10
5
0
0
10
20
30
40
50
60
70
80
90
100
201720162015201420132012
88.5 86.4
11.1 13.1
85.9
13.7
85.9
13.5
85.4
14.0
85.3
14.2
AUD
bn
Non-Domestic Legal (NDL)
Illicit Consumption
Legal Domestic Consumption
Ciga
rette
s bn
0
5
10
15
20
25
201720162015201420132012
24.9
22.0
2.8
24.9
21.6
3.319.7
2.7
16.9
21.6
2.9
18.6
22.4
3.1
19.2
Non-Domestic Legal (NDL)
Illicit Consumption
Loose Tobacco
Cigarettes
Legal Domestic Consumption
Actual ExciseTax revenues
Estimated Excise Tax Loss
2
0
2
4
6
8
10
12
FY2016/17
FY2015/16
FY2014/15
FY2013/14
FY2012/13
FY2011/12
7.4 7.6 8.4
1.4
10.6
1.6
9.9
1.5
8.8
1.40.9 1.1
3.3
19.9
23.3
0.4NDL 0.5
NDL0.4NDL
0.6NDL
0.5NDL
0.4NDL
0.1NDL
0.1NDL 0.1
NDL 0.1NDL 0.1
NDL
0.1NDL
0
5
10
15
20
25%
Rohan Pike(2016)
Euromonitor(2017)
KPMG(2017)
Oxford Economics(2017)
6.4
7.2
8.0 9.9
7.0
10.9
10.90.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2017201620152014201320122011201020092008
0.25 0.260.33 0.33 0.360.35
0.530.61
0.70
0.46
AUD
per c
igar
ette
0
5
10
15
20
25
2017201620152014201320122011201020092008
Ciga
rette
s bn
% o
f Tot
al C
onsu
mpt
ion
AUD per pack of 20 cigarettes
Cigarettes sales bnRYO cigarette equivalent
AUD per pack of 20 cigarettes 25
20
15
10
5
0
0
10
20
30
40
50
60
70
80
90
100
201720162015201420132012
88.5 86.4
11.1 13.1
85.9
13.7
85.9
13.5
85.4
14.0
85.3
14.2
AUD
bn
Non-Domestic Legal (NDL)
Illicit Consumption
Legal Domestic Consumption
Ciga
rette
s bn
0
5
10
15
20
25
201720162015201420132012
24.9
22.0
2.8
24.9
21.6
3.319.7
2.7
16.9
21.6
2.9
18.6
22.4
3.1
19.2
Non-Domestic Legal (NDL)
Illicit Consumption
Loose Tobacco
Cigarettes
Legal Domestic Consumption
Actual ExciseTax revenues
Estimated Excise Tax Loss
2
0
2
4
6
8
10
12
FY2016/17
FY2015/16
FY2014/15
FY2013/14
FY2012/13
FY2011/12
7.4 7.6 8.4
1.4
10.6
1.6
9.9
1.5
8.8
1.40.9 1.1
3.3
19.9
23.3
0.4NDL 0.5
NDL0.4NDL
0.6NDL
0.5NDL
0.4NDL
0.1NDL
0.1NDL 0.1
NDL 0.1NDL 0.1
NDL
0.1NDL
0
5
10
15
20
25%
Rohan Pike(2016)
Euromonitor(2017)
KPMG(2017)
Oxford Economics(2017)
6.4
7.2
8.0 9.9
7.0
10.9
10.9
Source: Australian Taxation Office 3Rate applied in October of each year. Includes individual Excise Tax increases as well as biannual index-linked rises.
Source: Euromonitor, KPMG, and Oxford Economics based on PM data 4 Price per pack of 20 of John Player Special Blue 40’s, the Most Sold Brand since 2016. The pack price of 20 is derived from a pack of 40 cigarettes.
Australia: Excise duty applied to cigarettes3
Australia: Legal Domestic Sales and prices4
Australia Market Summary |
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Australia: Composition of cigarette consumption5
2012 2013 2014 2015 2016 2017 % change
2016-17 Cigarettes bn % Cigarettes
bn % Cigarettes bn % Cigarettes
bn % Cigarettes bn % Cigarettes
bn %
Legal Domestic Consumption (LDC) 22.0 88.5 21.6 86.4 19.9 85.3 19.2 85.4 18.6 85.9 16.9 85.9 -9.0
Legal Domestic Sales (LDS) 22.0 – 21.6 – 19.9 – 19.2 – 18.6 – 17.0 – -8.9
Outflows of domestic duty-paid cigarettes 0.0 – 0.0 – 0.0 – -0.1 – -0.1 – -0.1 – 24.8
Total Non-Domestic Inflows (ND) 2.9 11.5 3.4 13.6 3.4 14.7 3.3 14.6 3.0 14.1 2.8 14.1 -8.7
Non-Domestic Legal (NDL) 0.1 0.4 0.1 0.4 0.1 0.5 0.1 0.6 0.1 0.5 0.1 0.4 -24.2
Non-Domestic Illicit 0.8 3.1 1.9 7.8 1.5 6.4 1.4 6.2 1.1 5.1 1.3 6.4 14.4
Chop-chop 2.0 8.0 1.3 5.4 1.8 7.8 1.8 7.9 1.8 8.4 1.4 7.2 -21.9
Domestic Illicit 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 n/a
Total Consumption 24.9 100.0 24.9 100.0 23.3 100.0 22.4 100.0 21.6 100.0 19.7 100.0 -8.9
Total Illicit Consumption 2.8 11.1 3.3 13.1 3.3 14.2 3.1 14.0 2.9 13.5 2.7 13.7 -8.1
Australia: Tobacco Consumption
Source: Oxford Economics1 Empty Pack Surveys were undertaken in 2017 Q2 and 2017 Q4. Tobacco clearances for 2012-2017 retrieved via FOI requests from the Australian Treasury Department. 2012 data were adjusted to account for tobacco products destroyed following the introduction of plain packaging legislation. Chop-chop volumes sourced from KPMG, Illicit tobacco in Australia, 2017 Full Year Report, April 2018. See Report methodology for more details.
2 See http://newsroom.border.gov.au/releases/two-years-of-abf-400-tonnes-of-tobacco-seized3 See http://newsroom.border.gov.au/releases/57-million-illegal-cigarettes-seized-in-joint-operation4 See https://www.ato.gov.au/Media-centre/Media-releases/Record-tobacco-bust-in-Bundaberg,-Queensland/5 This includes cigarette equivalents of legal RYO and Chop-chop. A conversion rate of 0.775 grams per cigarette was applied to turn weight into cigarette equivalents, based on rates applied by the Australian Taxation Office (historical data has been updated to reflect the new conversion rates applied by the Australian Taxation Office). Estimates of Chop-chop consumption have been restated in the KPMG, Illicit tobacco in Australia, 2017 Full Year Report for 2014-2016 based on updated data on Smoking Prevalence in Australia.
| Australia Market Summary
The results from two Empty Pack Surveys, combined with official statistics on the volume of tobacco clearances sourced from the Australian Treasury Department, and KPMG data on Chop-chop volumes, were used to estimate Total Consumption of cigarettes and loose tobacco in Australia.1
Total Consumption was estimated at 19.7 billion cigarettes in 2017, representing an 8.9% decline in comparison with 2016. Of this, an estimated 16.9 billion or 85.9% was Legal Domestic Consumption, 0.4% was Non-Domestic Legal, and the remaining 13.7% was Illicit Consumption.
Total Illicit Consumption declined by 8.1% to 2.7 billion cigarettes (or cigarette equivalents) in 2017. This represents the lowest volume recorded since the beginning of the Asia Illicit Tobacco Indicator research programme in 2012.
Illicit Incidence rose by 0.2 percentage points to 13.7%, however, as Legal Domestic Consumption declined by a more pronounced 9.0% compared with 2016. Despite this, Illicit Incidence remains below the peak of 14.2% in 2014.
The decline in Illicit Consumption was underpinned by a 21.9% reduction in Chop-chop volumes, which was partially offset by a 14.4% increase in the consumption of Non-Domestic Illicit cigarettes.
The decline in Illicit Consumption in recent years coincides with a concerted effort by the Australian Government to strengthen anti-illicit tobacco activities, recognising the link between illicit tobacco and serious organised crime. In 2015, the Australian Border Force (ABF) declared that illegal tobacco was a top priority by launching the “Tobacco Strike Team”, achieving significant success in the first two years of operation by seizing more than 400 tonnes of illicit tobacco with an estimated excise-duty value of nearly AUD 300 million.2
This was part of a wider move to integrate agencies working on border and customs enforcement. This is clearly illustrated by the year-long investigation that began in June 2017, combining resources from the ABF, the Department of Home Affairs, the Australian Criminal Intelligence Commission, and the Queensland and NSW police departments, which culminated in seizures of 57 million illicit cigarettes.3 The ATO has also remained active in combatting domestic home-grown illicit tobacco production, recently making a record seizure of more than 53 acres of illegal tobacco with an estimated excise value of AUD 30 million.4
Following the success of the strike team, the 2018 federal budget established the “Illicit Tobacco Taskforce” in July 2018, headed by the ABF and supported by the ATO. The taskforce has set a target of raising an additional AUD 3.6 billion in revenues over the next four years through a reduction in illicit tobacco consumption. This will be supported by new legislation, set for implementation in July 2019, requiring tobacco importers to settle all tax liabilities at the border rather than at the factory gate, aiming to cut out a potential source of leakage. Firms will also require permits for importing tobacco from this date to improve monitoring and oversight.
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Source: Oxford Economics
Source: Oxford Economics
Australia: Composition of cigarette consumption(% of Total Consumption)
Australia: Composition of cigarette consumption(number of cigarettes)
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2017201620152014201320122011201020092008
0.25 0.260.33 0.33 0.360.35
0.530.61
0.70
0.46
AUD
per c
igar
ette
0
5
10
15
20
25
2017201620152014201320122011201020092008Ci
gare
ttes b
n%
of T
otal
Con
sum
ptio
nAUD per pack of 20 cigarettes
Cigarettes sales bnRYO cigarette equivalent
AUD per pack of 20 cigarettes 25
20
15
10
5
0
0
10
20
30
40
50
60
70
80
90
100
201720162015201420132012
88.5 86.4
11.1 13.1
85.9
13.7
85.9
13.5
85.4
14.0
85.3
14.2
AUD
bn
Non-Domestic Legal (NDL)
Illicit Consumption
Legal Domestic Consumption
Ciga
rette
s bn
0
5
10
15
20
25
201720162015201420132012
24.9
22.0
2.8
24.9
21.6
3.319.7
2.7
16.9
21.6
2.9
18.6
22.4
3.1
19.2
Non-Domestic Legal (NDL)
Illicit Consumption
Loose Tobacco
Cigarettes
Legal Domestic Consumption
Actual ExciseTax revenues
Estimated Excise Tax Loss
2
0
2
4
6
8
10
12
FY2016/17
FY2015/16
FY2014/15
FY2013/14
FY2012/13
FY2011/12
7.4 7.6 8.4
1.4
10.6
1.6
9.9
1.5
8.8
1.40.9 1.1
3.3
19.9
23.3
0.4NDL 0.5
NDL0.4NDL
0.6NDL
0.5NDL
0.4NDL
0.1NDL
0.1NDL 0.1
NDL 0.1NDL 0.1
NDL
0.1NDL
0
5
10
15
20
25%
Rohan Pike(2016)
Euromonitor(2017)
KPMG(2017)
Oxford Economics(2017)
6.4
7.2
8.0 9.9
7.0
10.9
10.9
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2017201620152014201320122011201020092008
0.25 0.260.33 0.33 0.360.35
0.530.61
0.70
0.46
AUD
per c
igar
ette
0
5
10
15
20
25
2017201620152014201320122011201020092008
Ciga
rette
s bn
% o
f Tot
al C
onsu
mpt
ion
AUD per pack of 20 cigarettes
Cigarettes sales bnRYO cigarette equivalent
AUD per pack of 20 cigarettes 25
20
15
10
5
0
0
10
20
30
40
50
60
70
80
90
100
201720162015201420132012
88.5 86.4
11.1 13.1
85.9
13.7
85.9
13.5
85.4
14.0
85.3
14.2
AUD
bn
Non-Domestic Legal (NDL)
Illicit Consumption
Legal Domestic Consumption
Ciga
rette
s bn
0
5
10
15
20
25
201720162015201420132012
24.9
22.0
2.8
24.9
21.6
3.319.7
2.7
16.9
21.6
2.9
18.6
22.4
3.1
19.2
Non-Domestic Legal (NDL)
Illicit Consumption
Loose Tobacco
Cigarettes
Legal Domestic Consumption
Actual ExciseTax revenues
Estimated Excise Tax Loss
2
0
2
4
6
8
10
12
FY2016/17
FY2015/16
FY2014/15
FY2013/14
FY2012/13
FY2011/12
7.4 7.6 8.4
1.4
10.6
1.6
9.9
1.5
8.8
1.40.9 1.1
3.3
19.9
23.3
0.4NDL 0.5
NDL0.4NDL
0.6NDL
0.5NDL
0.4NDL
0.1NDL
0.1NDL 0.1
NDL 0.1NDL 0.1
NDL
0.1NDL
0
5
10
15
20
25%
Rohan Pike(2016)
Euromonitor(2017)
KPMG(2017)
Oxford Economics(2017)
6.4
7.2
8.0 9.9
7.0
10.9
10.9
Australia Market Summary |
77
Australia: Government Finances Australia operates a single-tier unit-specific Excise Tax structure with additional biannual increases linked to average earnings (the average weekly ordinary time earnings, or AWOTE index). In November 2013, the federal government announced that it would proceed with a series of four 12.5% annual increases in excise duty on tobacco products, ending in September 2016. Subsequently, the Excise Tariff Amendment (Tobacco) Act 2016 was introduced, leading to four more annual increases at the same rate, covering the period up to and including 2020. The first increase under this agreement was implemented in September 2017. In May 2017, the Excise Tariff Amendment (Tobacco Duty Harmonisation) Bill 2017 was introduced, which aims at better aligning the tax treatment of manufactured cigarettes and RYO products by adjusting the assumptions behind the tobacco content per stick from 0.8 grams to 0.7 grams for the purposes of applying the “excise-equivalent customs duty rate”. The changes will be phased in over the four year period to and including 2020. According to the 2017/18 budget, the government anticipates that this change will raise an additional net AUD 30 million in revenues in the fiscal year 2017/18 and AUD 360 million up to and including the fiscal year 2020/21.1
As a consequence, the Excise Tax rate on RYO products rose by 18.1% to AUD 901.39 per kg of tobacco content in 2017, with the tobacco content per stick assumption reduced to 0.775 grams. The Excise Tax rate on manufactured cigarettes rose by 14.4% to AUD 698.58 per thousand cigarettes in comparison.2
Australia also levies a GST of 10% on the retail price for tobacco products. Actual revenues from excise duties continued to trend upwards in the fiscal year 2016/17, rising by 6.9% to AUD 10.6 billion, with higher Excise Tax rates again offsetting a steady decline in Legal Domestic Sales. Our estimates indicate that the Tax Loss due to Illicit Consumption of cigarettes and Chop-chop rose by 5.8% to AUD 1.9 billion in the fiscal year 2016/17.
Source: Australian Treasury Department, Australian Tax Office, and Oxford Economics based on PM dataEstimated number of illicit cigarettes purchased adjusted for fiscal year. Data for fiscal year, which runs from July to June. Includes loose tobacco. For the purposes of estimating the Tax Loss in 2017, a conversion rate of 0.775 grams per cigarette was applied to turn weight into cigarette equivalent. Prior to this, a conversion rate of 0.8 grams per cigarette was applied for the purposes of estimating the Tax Loss. Conversion rates are based on those applied by the Australian Taxation Office.1See https://budget.gov.au/2017-18/content/bp2/html/2Comparing September 2017 with September 2016.
Australia: Actual government revenues and estimated Tax Loss
2011-12 fiscal year
2012-13 fiscal year
2013-14 fiscal year
2014-15 fiscal year
2015-16 fiscal year
2016-17 fiscal year
% change in local
currency 2015/16-2016/17
AUD bn
USD bn
AUD bn
USD bn
AUD bn
USD bn
AUD bn
USD bn
AUD bn
USD bn
AUD bn
USD bn
Actual revenue from excise duties on tobacco 7.4 7.6 7.6 7.0 8.4 7.7 8.8 7.4 9.9 7.2 10.6 8.0 6.9%
Estimated number of illicit cigarettes purchased (cigarettes bn)
0.8 2.0 1.7 1.4 1.1 1.3 16.6%
Estimated volume of illicit loose tobacco (Chop-chop) purchased (cigarettes equivalent bn)
1.9 1.3 1.9 1.7 1.8 1.3 -20.2%
Estimated Tax Loss from Illicit Consumption 1.1 1.1 1.3 1.2 1.6 1.4 1.7 1.4 1.8 1.3 1.9 1.4 5.8%
Lost excise revenue 0.9 0.9 1.1 1.1 1.4 1.2 1.4 1.2 1.5 1.1 1.6 1.2 5.9%
Lost GST revenue 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 4.6%
Excise Tax Loss as % of potential total Excise Tax revenues 10.8% 13.1% 13.8% 13.8% 13.4% 13.3%
| Australia Market Summary
88
Source: Australian Treasury Department, Australian Taxation Office, and Oxford Economics based on PM data
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2017201620152014201320122011201020092008
0.25 0.260.33 0.33 0.360.35
0.530.61
0.70
0.46
AUD
per c
igar
ette
0
5
10
15
20
25
2017201620152014201320122011201020092008
Ciga
rette
s bn
% o
f Tot
al C
onsu
mpt
ion
AUD per pack of 20 cigarettes
Cigarettes sales bnRYO cigarette equivalent
AUD per pack of 20 cigarettes 25
20
15
10
5
0
0
10
20
30
40
50
60
70
80
90
100
201720162015201420132012
88.5 86.4
11.1 13.1
85.9
13.7
85.9
13.5
85.4
14.0
85.3
14.2
AUD
bn
Non-Domestic Legal (NDL)
Illicit Consumption
Legal Domestic Consumption
Ciga
rette
s bn
0
5
10
15
20
25
201720162015201420132012
24.9
22.0
2.8
24.9
21.6
3.319.7
2.7
16.9
21.6
2.9
18.6
22.4
3.1
19.2
Non-Domestic Legal (NDL)
Illicit Consumption
Loose Tobacco
Cigarettes
Legal Domestic Consumption
Actual ExciseTax revenues
Estimated Excise Tax Loss
2
0
2
4
6
8
10
12
FY2016/17
FY2015/16
FY2014/15
FY2013/14
FY2012/13
FY2011/12
7.4 7.6 8.4
1.4
10.6
1.6
9.9
1.5
8.8
1.40.9 1.1
3.3
19.9
23.3
0.4NDL 0.5
NDL0.4NDL
0.6NDL
0.5NDL
0.4NDL
0.1NDL
0.1NDL 0.1
NDL 0.1NDL 0.1
NDL
0.1NDL
0
5
10
15
20
25%
Rohan Pike(2016)
Euromonitor(2017)
KPMG(2017)
Oxford Economics(2017)
6.4
7.2
8.0 9.9
7.0
10.9
10.9
Australia: Actual government revenues and estimated Excise Tax Loss
Australia Market Summary |
99
The decline in total Illicit Consumption in 2017 was driven by a 21.9% fall in the volume of Chop-chop consumed to 1.4 billion cigarette equivalents, down from 1.8 billion. This was estimated using Consumer Survey data, which indicated a decline in both the average frequency of purchase and average amount purchased of respondents who reported purchasing illicit unbranded tobacco in 2017.1
The decline in Chop-chop was partially offset by a 14.4% increase in Non-Domestic Illicit cigarette consumption. Contraband cigarette consumption rose by a more modest 4.8% in 2017. This was underpinned by a sharp increase in Inflows of Chinese market variant products, as well as an increasing presence of Indonesian market variant cigarettes, offsetting declines from other key source markets including New Zealand and South Korea. Counterfeit consumption remained relatively stable in 2017 at 62 million, accounting for just 2.3% of total Illicit Consumption. Analysis of the Empty Pack Surveys indicate that Non-Domestic consumption rose in all cities with the exception of Sydney, which experienced a slight decline in comparison with 2016. There were four cities that displayed a Non-Domestic Incidence greater than 10% (Cairns, Tweeds Head, Townsville, and Wollongong), while Darwin and Geelong experienced the largest rise in Non-Domestic consumption in 2017.
Australia: Trade Flows
Source: IT Flows Model and Oxford Economics 1 KPMG, Illicit tobacco in Australia, 2017 Full Year Report, April 20182 It is recognised that Chop-chop originates from both Non-Domestic and Domestic home-grown sources, however it is not possible to separate the two, and therefore for the purposes of this Report we consider all Chop-chop volumes to be of Non-Domestic origin. Figures in brackets reflect % changes from 2016.
Chop-chop 1,419 mn
(-21.9%)
China347 mn(+28.2%)
South Korea
113 mn(-0.6%)
Other / Unspecified
401 mn(+8.8%)
Other Duty-Free labelled
products239 mn
(+93.1%)New Zealand
20 mn(-77.6%)
Total2,686 mn
(-8.1%)
Cigarettes mn
2012 2013 2014 2015 2016 2017
Chop-chop 1,992 1,334 1,808 1,760 1,817 1,419China 171 285 347 280 271 347South Korea 157 742 478 245 114 113Indonesia 68 30 73 65 74 84New Zealand - 20 17 154 90 20Other Duty-Free labelled products 126 133 161 141 124 239Other/Unspecified 173 529 407 455 369 401Counterfeit 83 204 8 44 65 62
Counterfeit 2,770 3,276 3,300 3,144 2,924 2,686
Counterfeit62 mn(-5.6%)
Indonesia84 mn(+13.1%)
Australia: Origin of total Non-Domestic Illicit Inflows2
| Australia Market Summary
1010
Australia: Consumption breakdown 2017
Source: IT Flows Model and Oxford Economics
0
0
5,000
5,000
10,000
10,000
15,000
15,000
20,000
20,000
25,000
25,000
Cigarettes mn
Cigarettes mn
Total 19,672
Legal Domestic
Sales16,984
Legal Domestic
Consumption16,900
South Korea 1132
Indonesia 840
New Zealand
China 34710
Counterfeit 0 62
Other Duty-Free labelled
products73 239
Other/ Unspecified 0 401
0Chop-chop 1,419
Illicit Inflows
Non-Domestic Legal Inflows
Outflows of duty paid 83
Australia Market Summary |
200
1111
Australia: Other estimates
| Australia Market Summary
Source Comment
KPMG, Illicit tobacco in Australia, 2017 Full Year Report, April 2017. Retrieved via https://home.kpmg.com/uk/en/home/insights/2018/05/illicit-tobacco-in-australia-2017.html
Analysis by KPMG, combining Empty Pack Surveys and a survey of consumers, suggests an Illicit Incidence of 15.0% of Total Consumption in 2017. While the underlying data sources are the same, there are a few differences in methodology. In particular, KPMG uses Aztec – IRI (scan) databases and data from Nielsen Australia to estimate Legal Domestic Sales, whereas this Report uses actual tobacco clearances recorded by the Australian Taxation Office and Border Protection Service (Customs). The reports also differ in the calculation of Non-Domestic Legal Inflows, with KPMG estimating a smaller volume of legal Inflows of cigarettes, and hence a higher volume of Illicit Consumption.
Euromonitor Passport, 2018 Euromonitor estimates an Illicit Incidence of 9.9% in 2017. The methodology, sampling, and coverage are unknown, so it is difficult to assess the robustness of this estimate.
Parliamentary Joint Committee Inquiry into Illicit Tobacco, submission by Rohan Pike, former Superintendent of the Fraud and Anti-Corruption Division of the Australian Federal Police and head of the ABF Tobacco Strike Team. Retrieved via http://www.aph.gov.au/DocumentStore.ashx?id=0c1314f4-1cbf-4e69-ac6b-4b86fdeedf35&subId=462367
Drawing conclusions from a variety of sources, Rohan Pike estimated the size of the illicit market to be the equivalent of 21.8% of Total Consumption in 2016 (cigarettes and loose leaf tobacco only).1 This was equivalent to around 5 billion cigarette equivalents, resulting in a Tax Loss of nearly AUD 3.1 billion. Note that this excluded an additional AUD 763 million of Tax Loss resulting from Illicit Consumption of molasses tobacco (which is excluded from the analysis in this Report). When including this, the total estimated Tax Loss was AUD 3.8 billion, which represents 28.2% of the total market based on revenues.
ATO, Tobacco Tax Gap Analysis, 2015/16. Retrieved via https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/tobacco-tax-gap/
The ATO found a net tobacco tax gap – defined as the difference between the estimated value of excise duty raised from tobacco consumption and the actual value collected, netting off the volume of illicit tobacco seizures – of AUD 594 million (5.6% of total potential tax revenues). The research uses a “bottom-up” approach based on analysis of non-targeted tobacco seizures at the border (sea, air, post), seizures of Chop-chop, and a review of warehouse reporting systems (to identify leakages between tobacco importation, storage, and distribution).
Australian Criminal Intelligence Commission (ACIC), National Wastewater Drug Monitoring Program, March 2018. Retrieved via https://acic.govcms.gov.au/sites/g/files/net3726/f/nwdmp4.pdf?v=1522809564
Based on an analysis of wastewater, the ACIC estimated that Total Consumption of nicotine (includes cigarette consumption, as well as e-cigarettes and nicotine patches, gum etc.) to equal the equivalent of 1,480 cigarettes per 1,000 people per day in December 2018. Grossing up, this would equate to around 13.3 billion cigarettes of Total Consumption in 2017, a level that is lower than official estimates of legal Domestic Sales based on withdrawals.
1 A conversion rate of 0.8 grams per cigarette was applied to turn loose tobacco weight into cigarette equivalent, based on rates applied by the Australian Taxation Office in 2016.
Australia: Alternative estimates of Illicit Consumption
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2017201620152014201320122011201020092008
0.25 0.260.33 0.33 0.360.35
0.530.61
0.70
0.46
AUD
per c
igar
ette
0
5
10
15
20
25
2017201620152014201320122011201020092008
Ciga
rette
s bn
% o
f Tot
al C
onsu
mpt
ion
AUD per pack of 20 cigarettes
Cigarettes sales bnRYO cigarette equivalent
AUD per pack of 20 cigarettes 25
20
15
10
5
0
0
10
20
30
40
50
60
70
80
90
100
201720162015201420132012
88.5 86.4
11.1 13.1
85.9
13.7
85.9
13.5
85.4
14.0
85.3
14.2
AUD
bn
Non-Domestic Legal (NDL)
Illicit Consumption
Legal Domestic Consumption
Ciga
rette
s bn
0
5
10
15
20
25
201720162015201420132012
24.9
22.0
2.8
24.9
21.6
3.319.7
2.7
16.9
21.6
2.9
18.6
22.4
3.1
19.2
Non-Domestic Legal (NDL)
Illicit Consumption
Loose Tobacco
Cigarettes
Legal Domestic Consumption
Actual ExciseTax revenues
Estimated Excise Tax Loss
2
0
2
4
6
8
10
12
FY2016/17
FY2015/16
FY2014/15
FY2013/14
FY2012/13
FY2011/12
7.4 7.6 8.4
1.4
10.6
1.6
9.9
1.5
8.8
1.40.9 1.1
3.3
19.9
23.3
0.4NDL 0.5
NDL0.4NDL
0.6NDL
0.5NDL
0.4NDL
0.1NDL
0.1NDL 0.1
NDL 0.1NDL 0.1
NDL
0.1NDL
0
5
10
15
20
25%
Rohan Pike(2016)
Euromonitor(2017)
KPMG(2017)
Oxford Economics(2017)
6.4
7.2
8.0 9.9
7.0
10.9
10.9
1212
Australia: Data Sources
Primary source Calculation Comments
Legal Domestic Sales (LDS)
Actual volume of tobacco clearances recorded by the Australian Taxation Office and Border Protection Service (Customs), sourced from the Australian Treasury Department.
— Includes legal Other Tobacco Products sales.
Outflows of domestic duty-paid cigarettes
Empty Pack Survey data in other markets included in this Report.
Empty Pack Survey data in other markets used to identify the presence of packs bearing Australian market-specific labelling (e.g., health warnings, tax stamps etc.).
Outflows of domestic duty-paid cigarettes to other markets are estimated at around 83 million cigarettes, with the majority going to New Zealand.
Legal Domestic Consumption (LDC)
— Legal Domestic Sales minus Outflows of legal sales.
Outflows of duty-paid cigarettes refer only to Outflows to other markets included in this Report.
Total Non-Domestic Inflows (ND)
— Sum of Non-Domestic Legal and Non-Domestic Illicit.
—
Non-Domestic Legal (NDL)
— Estimated using passenger data, smoking rates, and passenger duty-free personal import allowance.
Maximum theoretical amount an individual can carry across a border. Passenger data from the Australian Bureau of Statistics.
Non-Domestic Illicit
Empty Pack Surveys and KPMG.
Based on Empty Pack Surveys, KPMG data, and OE estimates.
Estimates derived from the average of Empty Pack Surveys conducted in 2017 Q2 and 2017 Q4. An estimate for loose tobacco (Chop-chop) has been added based on the study by KPMG (2018). See Report methodology for more details.
Domestic Illicit — Zero under-declaration of domestically produced cigarettes.
There is assumed to be no under-declaration of domestically produced cigarettes.
Total Illicit Consumption
— Sum of Non-Domestic Illicit and Domestic Illicit.
—
Total Consumption
Legal Domestic Sales minus Outflows of domestic duty-paid cigarettes, plus estimated Non Domestic Legal consumption, plus estimated Illicit Consumption.
The IT Flows Model estimate of consumption is 19.7 billion cigarettes for 2017.
Total Tax Loss — Total Illicit Consumption multiplied by the weighted average tax rates (Excise Tax and GST).
See Report methodology for more details.
Australia Market Summary |
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