The total tobacco tax gap estimates both evasion of excise equivalent customs duty from imported tobacco, and evasion of excise duty from domestically grown tobacco, as compared with customs duty paid on legal imports of tobacco. Importantly, we have undertaken the traditional tobacco tax gap analysis for 2023-24 to continue the current time trend series.
However, the ATO has excluded the estimated tobacco tax gap from the reported results for the overall tax gap performance measure for the following reasons:
- The Australian Border Force collects all tobacco customs duty. All tobacco tax revenue is from tobacco customs duty. There is no legal domestic production of tobacco (on which excise duty is payable).
- As the evaded excise duty on domestically grown illicit tobacco (for which the ATO is responsible) is a relatively small component of the overall illicit tobacco gap, the total tobacco gap is not considered an appropriate measure of the ATO's performance. This is because the ATO's ability to materially influence the overall size of the illicit tobacco market is limited given its responsibilities and recognising that compliance activities are delivered across government.
Separately, we have assessed our current estimate of the tobacco tax gap as unreliable and are now undertaking a review of the method. The key reason for this decision is due to research undertaken by University of Queensland on the biomarkers of tobacco leaf consumption in samples of waste water throughout Australia. The preliminary analysis of the University of Queensland’s waste water sample results suggests that the total tobacco market and therefore the total illicit market is significantly higher than what we have previously estimated.
Extensive work on the illicit tobacco market is being performed elsewhere in government, including by the Office of the Illicit Tobacco and E-cigarette (ITEC) Commissioner (using a waste water based methodology). The ATO is working with ITEC and Australian Border Force who are providing more comprehensive and consistent reporting on the size of both the illicit tobacco and e-cigarette markets and estimates of excise and excise-equivalent customs duty evaded. This will include exploring with ITEC whether it is possible to isolate a reliable estimate of excise duty evaded on illicit tobacco from domestic crops, which would be a more appropriate performance measure for the ATO.