Malcolm Baalman
The hearings of the Senate inquiry into ‘The illegal tobacco crisis in Australia’ commenced Monday 4 May. The inquiry was proposed by federal Coalition senators late in 2025, and is due to report by 30 June 2026.
Several government agencies and many public health groups have made submissions about the menace of illegal trade in tobacco (‘illicit tobacco” – which is mainly in the form of tobacco smuggled into Australia – evading taxation and often not compliant with health warnings and other product controls.
The best estimate is that across Australia about 40,000 retail outlets sell tobacco products – far more than the number of pharmacies, Coles and Woolies large supermarkets, and other categories of normal retails. Many are small operators who are demonstrably willing to illegally trade in products on which required taxes have not been paid. State and territory governments have all been significantly increasing their compliance enforcement, albeit several years after the problem clearly got out of control.
But the inquiry is also being lobbied heavily by the nicotine industry’s commercial interests, which is pushing for a large tax cut to the Big Tobacco import businesses.
Policy on tobacco matters has been strongly bipartisan for some decades now. For some years, both the Labor Party and the Liberal Party have refused direct donations from the tobacco industry. Although they have both failed in Parliament to move to make such donations illegal, some states have done so. The National Party does still takes political donations from tobacco companies.
That bipartisanship appears to be under strain. In recent weeks the Coalition has made significant noises that it was prepared to lower tobacco taxation, perhaps by as much as 50%. A Coalition internal ‘taskforce’ has been created to work on the issue, and a few weeks ago they met with PHAA, Cancer Council, and some of Australia’s leading public health academics to hear our views on the public health implications of the illegal trade.
It’s unclear whether Coalition policy will be determined by their relevant shadow health ministers, or by the taskforce, or by the members of the Senate committee.
But what is clear is that the major – indeed, the only – winner from a tax cut would be the tobacco industry itself.
It’s important to understand our actual tobacco tax regime, which is generally referred to by commentators as “excise”. It’s a dual system with excise duty on Australian-made tobacco products (with growers and manufactures required to be licensed), and a customs duty levied on imported tobacco products (which similarly must be handled by registered importers). The $ value of the levies are the same, based on a value either per stick or per kilogram of products. These are Commonwealth Government taxes.
However, there have been no legal Australian-made products, or registered producers, since around 2006. The excise duty collected for the past two decades has therefore been nil, and the future collections of excise duty are also near-certain to remain nil.
here is some tobacco grown and traded illegally in Australia, consisting of loose-leaf products often referred to as ‘chop-chop’. These producers are clearly not about to register officially and start paying excise duty.
There is, in fact, only customs duty– being collected. While this continues to be paid by the legal importers, a vigorous organised crime trade in smuggled goods is getting past that customs duty, at a large scale. Clearly, a significant potential customs duty revenue is being evaded. However, no current smuggler is going to apply for an official importer registration and start paying customs duty, whatever rate it is set at.
Data obtained by PHAA from the Government indicates that in 2025, there were just 49 officially registered commercial importers (down from about 70 a few years ago). But the real picture is that just over 95% of the imported quantity of products was done by just three registered importers, the ‘big tobacco’ three – British American Tobacco Australia (BATA), Imperial Brands, and Philip Morris International.
This is consistent with analysis by the Tobacco in Australia – Facts and Issues website, which identifies “three major tobacco companies operating in Australia in 2024, which collectively accounted for 92.0% of the wholesaling industry. BATA accounted for 44.3% of the Australian wholesale market, followed by Imperial Brands Australia (26.6%) and Philip Morris Australia (21.1%).”
The most recent official Budget update released in December 2025 estimate that tobacco customs duty collection for the 2025-26 year will be $5.45 billion. Future forecasts see the revenue estimate declining to $4.8 billion next year.
There is no evidence that a customs tax cut would hurt the illegal smuggler directly, or achieve any public health purpose. There is no legal basis for the Australian Government to force the multinational tobacco companies to spend any tax grant on lowering their product prices down the retailer supply chain, and since they obviously can’t compete with smuggling organised crime on price, why would they even try?
And even if they did pass on part of a sudden tax windfall, the only possible impact of a tax rate change would be to lower the overall prices of both the legal and illegal tobacco markets – which is exactly what we don’t want to see happen to keep consumption (and uptake of smoking by kids) being driven down.
Meanwhile, a quick calculation shows that if a 50% cut in the customs duty rate were applied in the next year, the multinational tobacco companies would benefit from a “tax expenditure” from the Australian Budget worth around $2.3 billion annually. With so many other urgent demands on our health budget, this would be a bizarre cash give-away for government to make. For example, the whole of the preventive health investment program that PHAA recommends to government has an annual cost of around $400 million.
BATA would get a tax grant worth just over $1 billion, Imperial Brands more than $600 million, and Philip Morris over $500 million.
No wonder the industry lobbying, and the influence campaign to talk up a tax cut, is intense lately.
Australia has international treaty obligations to prevent tobacco industry influence campaigns from infecting government policy-making.
One very welcome outcome of the current Senate inquiry would be a thorough exposure of the lobbying activities of tobacco interests (including retailers). Let’s see what this committee can unearth. Maybe it would be a trigger for serious reform of lobbying transparency in Australia, as so many have called for.
The inquiry could also recommend that tobacco industry political donations finally be banned.
PHAA’s submission to the inquiry is available here.
Malcolm Baalman is the PHAA’s Policy and Advocacy Manager
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