Illegal tobacco accounts for 50% of the market in Australia

Key points:

Illegal Tobacco: In Australia, the proportion of illegal tobacco has surpassed half, reaching 50% in June 2024, far exceeding the 14% in 2018. Nicotine consumption has reached a historic high. 

Policy failures: High consumption taxes and bans have fueled illegal trade, leading to the government's tobacco tax dropping from 160 billion Australian dollars (approximately 104 billion US dollars) in 2019 to 74 billion (approximately 48 billion US dollars) this year. 

Crime escalation: Gangs make an annual profit of 100 billion Australian dollars (approximately 65 billion US dollars) through illegal tobacco, leading to cases of arson, murder, robbery, and violence. Robberies in Victoria have increased by over 150%.

 Industry impact: Legal tobacco retailers have seen a significant drop in sales, with employees experiencing traumatic robberies. Some businesses are considering ceasing tobacco sales. 

South Australia's experience: Establishing a 45-member specialized enforcement team with warrantless search powers, shutting down illegal shops, and driving up legal sales. Other states have yet to follow suit.

According to ABC report on August 4th, currently, illegal cigarettes evading consumption tax account for half of the cancer-causing products sold to 2.7 million smokers in Australia.

Research released by FTI Consulting shows that the percentage is expected to reach 39.4% by 2024, a significant increase from 14% six years ago. The latest data for June indicates that this percentage has now risen to 50%.

Furthermore, according to wastewater research, nicotine consumption in Australia (including e-cigarettes) is at its highest level in history.

We can now conclude that the strategy of using taxation and bans to eliminate nicotine addiction has completely failed.

As a result, organized crime is able to generate an annual income of approximately 10 billion Australian dollars (approximately 6.5 billion US dollars).

Selling drugs may lead to long-term imprisonment, while selling cigarettes and e-cigarettes, even if unlucky enough to be caught, only results in a fine.

This means that income earned by criminals in Australia has reached unprecedented levels, leading to a sharp increase in the number of crimes being committed and the growing boldness with which they are carried out.

Competition in this "industry" is not resolved through price wars or with the help of the Australian Competition and Consumer Commission, as those involved are members of rival gangs. Instead, competitors may resort to arson attacks on each other's shops, or, as happened last week, allegedly plan to murder the employees of their rivals.

Over the past few years, there have been 125 cases of tobacco shop arson in the state of Victoria, and approximately 50 cases in other states - the most recent of which occurred last week in Corrimal, New South Wales.

The number of robberies continues to increase.

Since February 2024, violent robberies in the state of Victoria have increased by over 150% due to tobacco-related crimes.

Viva Energy, the company that operates Australia's largest chain of gas stations and convenience stores, reported in its half-year performance report that its tobacco sales decreased by 27% in the past year due to the expansion of illicit tobacco trade.

For Vivar Energy, the issue goes far beyond money: its gas stations and other convenience stores are now frequently targeted by gangs of teenagers wearing hoodies, wielding guns and machetes, robbing them, leaving employees deeply traumatized.

Large gangs are only targeting cigarettes - the entire store's inventory, because each pack of cigarettes sells for 57.89 Australian dollars (about 38 US dollars), and the inventory value can reach 100,000 Australian dollars (about 60,000 US dollars). By robbing five or six stores in one night, they can make a huge profit. The money in the cash register is simply not worth mentioning.

Consumption tax revenue has decreased.

The Albanian government is facing financial problems similar to those of Vivant Energy. In the current fiscal year, tobacco consumption tax is expected to be 74 billion Australian dollars (approximately 48 billion US dollars), which is a decrease from the 87.5 billion Australian dollars (approximately 57 billion US dollars) projected in the mid-year economic and fiscal outlook six months ago.

Theo Foukkares, CEO of the Australian Convenience Store Association, said that a turning point occurred in 2019 when the excise tax on cigarettes increased by 55% over three years, reaching $1.10 Australian dollars (about $0.70 USD) per pack.

As a direct result, the rise of illegal tobacco trade has led to a sharp decline in government revenue from tobacco consumption taxes, dropping from a peak of $16 billion Australian dollars (approximately $10.4 billion USD) in 2019 to $7.4 billion Australian dollars (approximately $4.8 billion USD) by 2025.

Despite the cost-of-living crisis, price is not the only factor driving people to turn to much cheaper illegal alternatives.

Firstly, illegal cigarette packaging does not feature gruesome images of oral tumors, making it more visually appealing.

On July 1, 2025, menthol cigarettes and cigarettes with mint flavor capsules in the filter were completely banned. In addition, tobacco companies are now required to print health warnings on the actual cigarettes, not just on the packaging — increasing costs.

Of course, illegal tobacco importers do not care about complying with the ban on mint-flavored products. They are even importing berry-flavored and mint-flavored cigarettes in hopes of attracting a younger consumer base.

The regulation requiring e-cigarette products with a nicotine content exceeding 20 milligrams to be purchased with a prescription has also proven ineffective. Only 700 pharmacies nationwide reluctantly sell these products, while in the same stores selling illegal cigarettes, these e-cigarettes can be easily purchased without a prescription.

It is estimated that Australia has 1.5 million regular e-cigarette users, in addition to 2.7 million smokers.

Legal stores may stop selling cigarettes.

The real danger now is that stores selling legal tobacco will give up this business, handing the entire industry over to criminals.

Gas stations find it difficult to do this because tobacco products account for 25-30% of their revenue; if they stop selling cigarettes, many gas stations may go out of business.

However, if the issue is not resolved, with more and more employees suffering from post-traumatic stress disorder, they will ultimately have to stop selling cigarettes.

By that time, Australia had essentially handed over the entire industry to gang members.

The fundamental issue seems to be that the federal government collects the sales tax, while enforcement is carried out by underfunded state police forces.

Illegal products are entering through ports in Australia, with importers suspected of evading taxes. Theoretically, two federal agencies - the Border Force and the Tax Office - should be handling this issue.

However, only about 1% of incoming containers are inspected by border force officials, and tax authorities lack both the resources and the willingness to investigate organized crime groups to recover tens of thousands of Australian dollars in taxes, risking their own doorstep being targeted with Molotov cocktails.

Once illegal tobacco enters the country, selling it does not constitute a criminal offense. However, destroying or burning down a competitor's store is a serious criminal act. Perpetrators of arson are difficult to apprehend, but it is not uncommon for them to accidentally set themselves on fire in the process.

In the 2025 budget, the federal government announced plans to allocate $156.7 million Australian dollars (approximately $101 million US dollars) for the "Illegal Tobacco Compliance and Enforcement Program," in addition to the $188.5 million Australian dollars (approximately $120 million US dollars) allocated over the four-year period from 2023.

Synthetic nicotine is expected to receive more relaxed regulatory policies in the United States.