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Illicit smokes up 25% since tax rise : tobacco boss

1 March 2011–tobacco-boss-20110228-1bbqv.html

ILLICIT trade of cigarettes in Australia has soared 25 per cent since the federal government last year moved to increase tax on cigarettes sharply and promised to bring in mandatory plain packaging, one of the world’s most powerful tobacco company executives has claimed.

Louis Camilleri, chairman and chief executive of Philip Morris International, the world’s biggest tobacco producer, told a briefing of mostly American analysts last month that the sale of smuggled cigarettes in Australia was rising quickly.

”The big concern is illicit trade,” New York-based Mr Camilleri said. ”Since the tax increase last summer [April], illicit trade has increased by 25 per cent in Australia.”

The alleged rise in cigarette smuggling poses a direct threat to the government’s revenue base, with the Australian Taxation Office collecting nearly $6 billion a year in tobacco excise and duties.

Budget papers have forecast that last April’s decision to hit smokers with an immediate tax rise of 25 per cent would deliver an extra $5 billion in tax revenue over five years. Those extra taxes were earmarked to support the National Health and Hospitals Network Fund.

It is believed a grouping of US and British tobacco companies, with operations in Australia, is set to release as early as today an independent report that will show a clear link between the decision to increase tobacco taxes in April and a rise in smuggling and counterfeiting by criminals.

Tobacco companies also claim that plain packaging will make it easier for counterfeiters to pass their packets as legal product. Plain packaging legislation is expected before Parliament this year and to come into affect on January 1, 2012.

”It [plain packaging] sort of defies logic, because I don’t think that it will affect consumption levels in any way,” Mr Camilleri told the US analysts.

”So, I’m hopeful that the government is looking at that very closely, because plain packaging will certainly not address that issue [illicit trade] and will not address smoking incidence or smoking prevalence.”

Data published by the Australian Customs and Border Protection Service does show an increase in tobacco smuggling in 2009-10, a year that includes two months of the stiff rise in cigarette taxes. Detection of illicit tobacco totalled 310,707 kilograms last financial year, nearly double the 175,405 kilograms detected in 2008-09. More than 68.72 million cigarettes were detected, up from 50.177 million the year before.

Tim Wilson, director of the Institute of Public Affairs’ free trade unit, said higher taxes would encourage criminal behaviour.

”The more prices rise the greater there’s a temptation for organised crimes to supply the market and for consumers to buy out of the black market, and in the process taxes to pay for the health consequences go out the window,” he said.

”Even the government’s own adviser, Intellectual Property Australia, has warned against plain packaging’s risk to increase counterfeit tobacco products entering Australia.

”The government likes to argue they’re leading the world by introducing plain packaging, but they seem oblivious to the serious legal risks from stripping trademarks when the UK, Canadian, New Zealand, Lithuanian and mid-1990s Australian government have rejected plain packaging on intellectual property grounds.”

Fiona Sharkie, executive director of Quit Victoria, said a rise in illicit trade was expected when the tax was increased, but this would pale in comparison against the revenue raised.

She said earlier figures on illicit trade in a report commissioned by the tobacco companies were strongly criticised and disputed at the time.

Prof .   J u d i t h   L o n g s t a f f   M a c k a y

MBChB, FRCP (Edin), FRCP (Lon)

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