Illicit tobacco (commonly known as chop-chop) is a key risk to revenue. Our analysis identified legally produced tobacco as the most likely source of supply for the illicit market.
In 2002 the Tax Office implemented an active compliance strategy in the tobacco growing areas of Queensland and Victoria to ensure legally grown tobacco is not diverted to the illicit market. We placed staff in the tobacco growing regions to determine the quantity of tobacco being grown on each farm and to actively monitor each crop throughout the production cycle.
We also established a dedicated team of compliance staff to educate producers about their legal obligations to account for tobacco they produce. Finally, the strategy also involved joint investigations with state police and increased liaison with local authorities to assist in intercepting illicit tobacco being sourced in, and moved from, the growing regions.
The overall effect of this strategy to date has reduced the supply of tobacco for the illicit market. Evidence of this can be seen in:
the increase in the street price of chop-chop, which has doubled from around $80 to around $160 a kilogram
the reported reduction in the quality of the illicit product
significant increases in the manufacture of legal tobacco products, and
increased excise collected from legally manufactured tobacco products.
The success of the strategy has, however, resulted in increased security concerns among growers and tobacco cooperatives. As the value of tobacco for the illicit market increased, the threat of violence associated with the illicit trade also increased. To address this, the Tax Office made a grant to the Tobacco Cooperative of Victoria to help them improve security for the storage of tobacco leaf.
Another concerning aspect of the illicit tobacco trade during 2002–03 was the increased health risk associated with illicit tobacco. Because chop-chop is not produced using strict quality control measures, there were media reports of fungal respiratory infections associated with the use of illicit tobacco.
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