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  • Tobacco tax gap

    The tobacco tax gap is the difference between the estimated value of excise or customs duty raised from tobacco according to the law ('tobacco duty') and the value actually raised for a financial year.

    All tobacco and tobacco products produced in or entering Australia are subject to tobacco duty. Tobacco duty is applied on a per-stick basis for cigarettes and a per-kilogram rate for loose tobacco and other tobacco leaf products.

    Since 2015 when regulated domestic manufacturing ceased, Australia has imported all of its legal tobacco products. Before then, the ATO collected tobacco excise on domestically manufactured tobacco and managed the licensing of tobacco growers. All licences to grow domestic legal tobacco were withdrawn in 2006.

    This tobacco tax gap estimate covers:

    • illicit tobacco importation
    • unlicensed domestic cultivation ('chop-chop')
    • leakage of pre-taxed ('underbond') legal tobacco product from warehouses.

    The estimate does not cover:

    • the inbound air passenger allowance of 25 sticks
    • e-cigarettes or nicotine replacement therapies (these do not attract tobacco duty).

    Tobacco duty collection is jointly administered by the ATO and the Australian Border Force, which sits within the Department of Home Affairs (Home Affairs). This report reflects the involvement of both agencies in managing the risk of illicit tobacco in Australia.

    Estimate of the tax gap

    This is the second release of the estimate for the tobacco gap within the Australian economy. The estimate covers three financial years, from 2015–16 to 2017–18.

    For 2017–18, we estimate the net tobacco tax gap to be 5% or $647 million. In other words, we estimate that around 95% of the total theoretical tax payable on tobacco was paid in 2017–18.

    We adopted a model-based bottom-up methodology to estimate this gap, drawing on supply-side channel analysis. This methodology incorporates a number of separate approaches across the various channels where tobacco may enter Australian consumption without tobacco duty applied.

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      Last modified: 17 Oct 2019QC 55324