Tobacco Industry Forum minutes April 2013 (TIF)

    Meeting details


    ATO- Latitude East, 52 Goulburn Street, Sydney Room L15.714




    9 April 2013








    Pauline Zdjelar




    Mercia Needham

    Contact phone:

    (02) 6216 1759


    Will Day


    Peter Harding


    Anthony McSweeney

    Customs and Border Protection Service

    Matt O'Connor

    Customs and Border Protection Service

    Janaka Seneviratne

    Customs and Border Protection Service

    Kingsley Woodford-Smith

    Customs and Border Protection Service

    Mark Dimech

    British American Tobacco Australia Ltd (BATA)

    Barry Wilson

    British American Tobacco Australia Ltd

    Eric Jones

    British American Tobacco Australia Ltd

    Lachlan Beaton

    British American Tobacco Australia Ltd

    Rachel Howard

    Philip Morris Limited (PML)

    Rodney Kretchmer

    Philip Morris Limited

    Florian Mueller

    Philip Morris Limited

    Gary Dickson

    Imperial Tobacco Australia (ITA)

    Michelle Park

    Imperial Tobacco Australia

    Anthony Millgate

    Department of Health and Ageing (Health)

    Natalie Toms

    Department of Health and Ageing


    David Andrew

    Customs and Border Protection Service

    Sharon Appleyard

    Department of Health and Ageing

    Chris Argent

    Philip Morris Limited

    Adam Dawes

    Department of Agriculture, Fisheries and Forestry

    Bradley Grant

    Customs and Border Protection Service

    Michele Harper

    Customs and border Protection Service

    Steve Hutchison

    Australian Competition & Consumer Commission

    Errol McMahon

    Imperial Tobacco Australia

    Mark Paton

    Customs and Border Protection Service

    Sonia Stewart

    Imperial Tobacco

    Brett Totten

    Customs and Border Protection Service

     Agenda items 


    The Tobacco Industry Forum (TIF) agendas, minutes and related papers are not binding on the ATO, Customs and Border Protection or the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

    1. Welcome, minutes of previous meeting and action items

    The Chair, Pauline Zdjelar welcomed everyone to the meeting. As there were new members and guests at the meeting, members went around the table and introduced themselves and provided information on their current roles. Guests included Florian Mueller from Phillip Morris Limited in Switzerland and Eric Jones from British American Tobacco in London both of whom joined the meeting to present an outline of the international experience of tracking and tracing tobacco products.

    The Minutes of the previous meeting were endorsed without change.

    Updates were provided on the following action items:

     Action item 090812-2

    Pauline outlined the difficulties around determining ‘origin’ of product and deciding on whether a product had been manufactured in Australia or imported from overseas. Pauline noted that once the product is identified, jurisdiction is still unclear as to whether it should sit under the Customs Act or the Excise Act.

    Pauline advised that the ATO, Treasury and Customs are working on progressing this issue through legislative change. Will Day informed the forum that there is some traction at the moment and Serious Non-Compliance (SNC) staff are developing a paper on prosecutions using the Criminal Code. Pauline advised that the process to change legislation is a long one. Industry will be kept informed of progress.

     Action item 090812-3

    Mark Dimech advised the forum that industry had made a submission to the Treasury Post-Implementation Review (PIR) to increase the excise tariff applying to tobacco products by 25 %. Both Mark and Rachel Howard noted that Treasury had a good understanding of the industry and tobacco trade issues and they appreciated the valuable and constructive opportunity to provide feedback to Treasury.

    2. Agency

     2.1 ATO

    • Tobacco Plain Packaging update
    • Serious Non-Compliance
      • 1. Prosecution activities
      • 2. Intelligence forward work program
      • 3. Excise Equivalent Goods Administration update

     2.2 Department of Health and Ageing

    • Protocol on illicit Trade update

     2.1 ATO

     Tobacco Plain Packaging

    Peter Harding provided the an update on plain packaging noting that the ATO has played a key support role for the Australian Government’s introduction of plain packaging for tobacco products.

    Beginning in October 2012 industry commenced a comprehensive destruction program resulting in remissions or refunds of excise or customs duty.

    The measures meant that from:

    • 1 October 2012 branded product could no longer be manufactured or imported for sale in Australia, and
    • 1 December 2012 branded product could no longer be sold or offered for sale in Australia.

    The ATO established a project to manage the process. This approach was used due to the expected large volumes of destruction activities and the need to manage various technical issues and process requirements in short time frames. The project was managed with the dual aims of providing assurance to the ATO, and to Government on the veracity of refund and remission claims, as well as assisting industry in making the transition.

    The ATO engaged major industry players early, drawing on the extensive knowledge and experience of Excise Client Relationship Managers and the organisational skills and operational knowledge of our Licensing team for assistance. Barry Wilson from BATA, stated that the early engagement with industry was useful. Industry was very appreciative of the flexibility and support provided by the ATO and Customs. He further stated that the project was well managed and ran reasonably smoothly. Industry members thanked the ATO for their assistance noting in particular the work of Jill Tanner and Brian Gilbertson.

    The ATO was aware that the workload for industry increased significantly due to logistics in managing capacity while managing the transition to plain packaged product. Pauline thanked industry members for their excellent level of cooperation with the project.

    Peter stated that working with industry from the outset allowed early identification of technical issues which helped ensure a smooth transition from the pre to post legislative environment, with the streamlining of claims processing playing a significant part.

    The project team also assisted Customs to implement its own plain packaging project, providing logistical and technical guidance on destruction processes.

    Destruction of old tobacco stock took place in all states and territories, with the ATO playing a pivotal role in supervising the majority of activities.

    Thanks to the co-operation and strong efforts of the key industry players, and their logistics firms, the project has now closed with the ATO having a high degree of confidence in the claims made, and the destruction processes of the claimants.

     Serious Non-Compliance

    Will Day advised the forum that he has a legal background and has been working in the ATO in the Serious Non-Compliance (SNC) business line for the last couple of years. Will informed members that John Lewis was on leave, pending retirement and that Adrian Clutterbuck from Melbourne will take over John’s role. Members requested that the Minutes reflect their appreciation for the commitment and work John had provided to the forum over the last couple of years and offered their best wishes for his retirement.

    Will reiterated the information that Pauline provided earlier in the meeting around the work on tobacco origin noting the investment in working on the illicit trade in tobacco between the ATO, Treasury and Customs. He agreed that proving origin is difficult, however, the ATO has strong relationships with the Commonwealth Director of Prosecutions (CDPP) who are also exploring options on the definitions around manufacture to assist with this work.

    Pauline advised that Excise Ruling ER 2012/1 was published last year. This Ruling, currently under review, deals broadly with the act of manufacturing or producing excisable goods including tobacco products. 

    The ATO has a strong commitment to work to disrupt organised crime as part of the Phoenix taskforce. Scope for this work includes tobacco. SNC is in a planning phase of work to examine the key risks in tax crime which includes tobacco.

     Excise Equivalent Goods (EEG) Administration Consultation

    Pauline advised that the partnership agencies completed the EEG industry consultation in November/December 2012. She thanked industry for participating in the consultation process, and for their valuable input in developing the reform options.

    The partnership agencies have finalised the recommendations and expect to report back to Government later this month. The ATO will inform forum members of any decisions / outcomes.

    There was a general discussion with Customs and industry around graphic package warnings. Customs advised that there would be no extension beyond 30 April to the temporary arrangements for refunds. It was suggested that industry members could consult with Geoff Johannes from Customs, outside of the TIF, if they wished to discuss this issue further.

    Customs agreed to send contact details to industry members to provide an opportunity to talk with them on this issue. Brian Wilson from the ATO would also be involved in the discussion.

    Action Item: 090413-2-1 Responsibility

     Due Date:

    As soon as possible


    Provide Custom contact details to facilitate discussion around package warnings


    Matt O'Connor

     2.2 Department of Health and Ageing (Health)

    Anthony Millgate from Health provided an update on the Protocol on Illicit Trade. Anthony advised that the Australian Government participated in the fifth session of the Conference of the Parties (COP) to the Framework Convention on Tobacco Control (FCTC) in Seoul, Republic of Korea from 12- 17 November 2012.

    The FCTC Protocol to Eliminate Illicit Trade in Tobacco Products (the Protocol) was adopted at COP5 in November 2012. This is the first Protocol to be developed under the auspices of the FCTC. The Protocol is available on line.

    The Protocol opened for signature on 10 January 2013 and remains open until 9 January 2014. As at 3 April 2013, sixteen parties have signed the Protocol. Australia has commenced work on the domestic processes that precedes a decision on whether to sign and ratify the Protocol. This will include a regulation impact statement (RIS) which will include consultation with appropriate stakeholders. In consultation with relevant agencies and departments the Health has engaged a consultant to develop the RIS.

    The consultant undertaking the RIS is Allen and Clarke (A&C), a New Zealand based consultancy company A&C provide policy and regulatory support to a range of Government organisations and also undertake international development work in the Pacific, and Asia region. They have experience in tobacco control policy and more recently have been involved in developing a RIS for Health related to Articles 9 and 10 of the World health organisation (WHO) FCTC.

    Industry members advised that they are willing to provide intelligence on illicit trade to Health, the ATO and to Customs. Industry is supportive of the protocol.

    3. Agency

     3.1 (continued)

    •  Customs and Border Protection Service
      • Six monthly update on illicit tobacco
      • Destruction of branded product

     3.2 Treasury

    • Post Implementation Review -25% increase in Tobacco Excise

     3.1 Customs and Border Protection Service (Customs)

    Kingsley Woodford-Smith stated that from a Customs perspective there has been no change in detection of illicit product since the legislation changed in November 2012. He advised that there has been no reporting of illicit plain packaged cigarettes, only branded product.

    Janaka Seneviratne from Customs provided the following six monthly update on illicit tobacco:

     Sea Cargo Detections - Tobacco - July to December 2012

    • 14 sea cargo importations of illicit tobacco (including 6 importations of molasses tobacco) were intercepted in Australia. This represents a decrease of 7 % compared with the previous six months and an increase of 40 % compared with the last six months of 2011.
    • 68 tonnes of tobacco (including 9 tonnes of molasses tobacco) were detected in the sea cargo stream during the reporting period. The total tobacco weight is identical to the previous six months but it is a decrease of 38 % compared with the last six months of 2011.
    • Indonesia (5 out of 8 detections) accounted for 92 % and Vietnam, with two detections, accounted for 7 % by weight of all leaf tobacco detections. The only other detection consisting of small a quantity was from India.
    • 54 tonnes of leaf tobacco originated from Indonesia.
    • 3.1 tonnes (33%) of molasses tobacco originated from Egypt whilst 2 6 tonnes (28%) each originated from India 1 and Malaysia.

     Sea Cargo Detections - Cigarettes - July to December 2012

    • There were 19 detections of cigarettes. This is an increase of 46 % compared with the previous six months and an increase of 73 % compared with the last six months of 2011. There were however, a few detections of small quantities during this reporting period.
    • 63.6 million sticks were detected in sea cargo. This represents an increase of 3 % compared with the previous six months and an increase of 6 % compared with the last six months of 2011.
    • Of the 19 cigarette detections, the UAE accounted for 4 (21%) whilst Malaysia, China and Egypt accounted for 2 (10%) each. In terms of quantity, Malaysia accounted for 18.3 million sticks (29%) with the UAE, accounting for 17.6 million sticks (28%). Other significant detections were Singapore - 10 million sticks (16%), China - 8.6 million sticks (14%) and Egypt - 7 million sticks (11%). Cigarettes from the UAE and Singapore may, however, be transhipment.
    • Traditionally China has been the main source for illicit tobacco; this trend appears to have changed during the recent past.

     Air Cargo Detections - July to December 2012

    • There were a total of approximately 125 recorded detections of tobacco and cigarettes.
    • A total of 2558 kilograms of tobacco (processed tobacco - 673kg; molasses tobacco - 1885kg) were detected. This is an increase of 950% in processed tobacco and an increase of 280% in molasses tobacco compared with the last 6 months.
    • A total of approximately 304000 cigarettes were detected. This is a decrease of 6% compared with the last 6 months.
    • These figures represent 3.8% and 0.48 % respectively of the quantities of tobacco and cigarettes detected through the sea cargo stream.
    • 60% of the molasses tobacco was imported from the UAE and 90% of the processed tobacco came from India.
    • 87% of the cigarettes came from China. China continues to be the major source country for cigarettes through air cargo, although, Malaysia was a major source country for cigarettes in sea cargo, there were no recorded detections in the air cargo stream.
    • 40% of the detections were in Sydney whilst 38% were in Melbourne.
    • Potential duty loss is approximately $370,000 which is 0.7% of that through the sea cargo stream.

     Passenger Stream (includes crew)

    • A total of 7 kilograms of tobacco (including 1kg of molasses tobacco) and 88492 cigarettes were detected. This represents a decrease of 86% in tobacco detections and decrease of 45% in cigarette detections compared with the last six months.
    • These figures represent 0.01% and 0.14% respectively of the quantities detected through the sea cargo stream.
    • The reduction in the duty free allowance for cigarettes from September 2012 does not appear to have had an influence on the detections.
    • Melbourne accounts for 30%, whilst Sydney and Perth account for 24% and 12% respectively of all the detections.
    • Crew detections dropped to only three, all in Melbourne. However, these account for 15% of cigarette detections through the passenger stream.
    • Potential duty loss is approximately $34,000 which is equivalent to 0.07% of that through sea cargo.

    Tony McSweeney advised that four people had been arrested over an illicit loose leaf tobacco discovery. One person has been charged under the new legislation and a further person is expected to be charged by the end of April. Tony noted that recovery of fines was difficult, particularly in NSW and Victoria. Queensland jurisdiction is tougher on criminals with some offenders jailed. It is expected that the new legislation will ensure a more even handed approach to managing these crimes across the different States.

    Pauline thanked Janaka for the comprehensive report on behalf of the forum.

     3.2 Treasury

    Robyn Vincent from Treasury provided the following information via email on 3 April, 2013:

    The Post Implementation Review - 25% increase in Tobacco Excise (April 2010), is currently going through Government processes. Treasury will advise industry once released on the Office of Best Practice Regulation (OBPR) website.

    4. Industry

    •  4.1 Various Updates
    •  4.2 Tracking and tracing of tobacco products - international experience
    •  4.3 Proposal to develop a consolidated report on Government and industry activity, and reporting, of anti-illicit trade in Australia.

     4.1 Industry Updates

    Barry Wilson, Rachel Howard and Gary Dickson provided the following update on illicit tobacco trade:

    • covert operations and purchases by industry have quadrupled since  February, 2012
    • BATA have significantly increased the level of enforcement with retailers, and some habitual offenders selling illicit tobacco
    • eight retailers have been before the Courts
    • there has been a significant increase in contraband purchases over the last twelve months, and
    • chop chop levels have remained fairly constant over the last twelve months; however, there has been an increase over the previous twelve months with a measurable increase in August and October, 2012.

    Barry then provided an outline on the usual process and set-up of ‘pop up’ country tobacco shop fronts, particularly in Victoria, that sell illegal tobacco / chop chop. BATA is gathering evidence and will pass the information onto the ATO and Customs

    Barry circulated a copy of an advertisement for cheap cigarettes and agreed to provide details of the website to members via the secretariat.

    Industry requested details of the Health complaints phone line.

     4.2 Tracking and Tracing of Tobacco Products - International Experience

    Florian Mueller and Eric Jones provided a PowerPoint presentation on a new digital tracking and tracing process used for determining tobacco origin.

    Eric noted that the prime focus of their work is to examine standards for tracking and tracing, and authentication of tobacco product. He pointed out the illicit tobacco trade is a global problem with three main silos:

    • smuggling e.g. a huge problem across Europe for example 30% of tobacco in Ireland is illicit
    • counterfeit, and
    • tax evasion.

    Drivers for illicit trade across the world include:

    • increasing taxes
    • economic issues, and
    • regulation.

    Eric and Florian informed members that the digital processes they were demonstrating are currently available and in use in some countries in Europe. Operating costs for the digital system in Switzerland are $3M which is less than the cost of the previous tax stamp system which cost $15M, (and was easily corrupted / counterfeited). The new digital processes comply with the International Protocol on Illicit Trade (well before ratification of the Protocol implementation deadline). Florian demonstrated a ‘real time’ trace of a single package of cigarettes manufactured in Switzerland. The trace only took minutes and was able to identify the manufacturing factory.

     4.3 Proposal to develop a consolidated report on government and industry activity, and reporting, of anti-illicit trade in Australia

     Action item follow-up

    Following up on action item 090812-4 - prepare a scoping paper on proposed work on the ‘Role Framework’ project from the August, 2012 meeting, Mark Dimech advised forum members that he is preparing a report that outlines the work that the Government, including the ATO and Customs, and industry, undertake to fight illicit tobacco. BATA will fund the report which will clearly define the various roles between Government agencies and industry.

    The report will include value chain mapping, for example will help to provide an understanding and explanation of each branch of the value chain such as sources of origin and illicit supply. The intent of the report is to demonstrate what TIF can contribute to in the fight against illicit trade in tobacco. Industry is undertaking a considerable amount of work to measure the breadth of illicit trade and is keen to share this intelligence with Government.

    Pauline and Kingsley advised that they would need to obtain clearance from their respective agency Executives before participating in the report and will report back to Mark.

    Action Item: 090413- 4 - 1 Responsibility

     Due Date

    As soon as possible


    Provide cheap cigarettes web address to secretariat for circulation to members.


    Barry Wilson

    Action Item: 090413- 4 -2 Responsibility

     Due Date:

    As soon as possible

    Health Department

    Provide details of Health Complaints helpline to secretariat for circulation to members


    Natalie Toms

    Action Item: 090413 - 4 -3 Responsibility

     Due Date:

    As soon as possible

    ATO and Customs

    Clarify and identify agency ability to participate and share information in proposed report



    5. Measure of illicit trade in Australia 2013 Report

    Mark advised that KPMG is the new provider for the industry report on the illicit trade in tobacco in Australia; (formerly Deloitte). Mark pointed out that KPMG have also been engaged to prepare a report in New Zealand. Barry advised that KPMG have completed a report on illicit trade in the European Union (EU). Barry advised that he would provide a copy of this report if requested by members.

    KPMG will maintain consistency in the former Deloitte report by reporting over the same period, and asking the same, or similar questions etc. Will Day suggested that the new report should include a question asking respondents what the drivers are for buying cheap/illicit tobacco.

    Mark advised that the report could be used as an opportunity to inform Ministers etc of the extent of illicit trade. The report will be a snapshot of a point in time and KPMG have agreed to bring a full picture of the market size to compare with the previous consumer survey.

    Mark advised that information already gathered has indicated that:

    • trade in the illicit market is falling
    • there has been a shift in market structure i.e. between contraband and counterfeit, and
    • there has been a trend back to chop chop.

    Pauline noted that the ATO appreciates the level of good will previously shown in receiving advance notice of the report before it went live to the public/Government. Customs and ATO agreed that they would like to continue having the opportunity to preview the report.

    Pauline thanked Mark on behalf of the forum for the update and outline of details for the upcoming report.

    Action Item:: 0904 -5 -1 Responsibility

     Due Date:

    As soon as possible


    Provide a copy of KPMG EU report to secretariat for circulation to members as requested


    Barry Wilson

    6. Other business

     2.1 Next Meeting

     Next Meeting

    It was agreed that the next meeting should be take place following the election in September. Secretariat will canvas suitable dates from members.

    Action Item 090413 - 6 -1 Responsibility

     Due Date:

    As soon as possible


    Canvas members for suitable date for the next meeting



     Secretariat note: Members canvassed; most suitable date is Thursday 10 October. Meeting invitations will be forwarded shortly.



    This is the first time detections have been noticed from India.

      Last modified: 28 Feb 2014QC 39453