4.1
A broad range of concerns were raised by submitters and witnesses throughout this long-ranging inquiry, lasting now for four years, as to how illicit tobacco was being tackled, along with the evidence which highlighted a lack of a coordinated and concerted effort to tackle illicit tobacco.
4.2
The Australian Government has shown itself to be receptive to the views expressed by stakeholders and has taken action in a number of areas to address concerns prior to the final report of this inquiry being prepared. Many of the recommendations the committee may have made in that final report have already been implemented.
4.3
This chapter summarises concerns raised that have, in the intervening period, been addressed. The next chapter will address where the committee considers further work remains to be done.
Black Economy Taskforce
4.4
On 9 May 2017, the Treasury established the Black Economy Taskforce to examine black economy activities, consider the effectiveness of existing policy responses, and develop an overarching policy strategy. This taskforce is led by the Treasury, and includes a number of law enforcement agencies.
4.5
The Black Economy Taskforce reviewed the issue of illicit tobacco, among other illicit markets, and found:
There has been a clear regulatory failure by all levels of government going back a number of years to enforce laws governing illicit tobacco, in particular those governing retailing and distribution. We note that there has been widespread reporting of the sale of illicit tobacco, with some reports including shop addresses. Yet very little effective enforcement action appears to have been taken. This undermines confidence in the rule of law and provides free-rein to organised criminals. That, of itself, should justify a stronger and more coordinated enforcement regime.
4.6
Many of the key points made in the Black Economy Taskforce 2017 report reflect concerns raised at various points in this inquiry, including:
As well as causing revenue loss, illicit tobacco has adverse public health effects, as it undermines the disincentive of pricing measures and is accessible to underage users.
The penalties that apply in relation to illicit tobacco may not be sufficient to deter market activity.
Law enforcement efforts have been ineffectual and fragmented. For example, illicit tobacco crops are usually ploughed into the ground and cultivation equipment is destroyed when found, but limited or no further action is taken. The Black Economy Taskforce was told of many persons convicted of tobacco offences, who subsequently continue to trade actively.
Enforcement is hamstrung by laws that are difficult to enforce and penalties which do not reflect the seriousness of the crime. For example, prosecutors must prove whether illicit tobacco was cultivated in Australia or smuggled into the country in order to determine the appropriate charge. If illicit tobacco is discovered in a warehouse, it is very difficult to determine its origin, so once illicit tobacco crosses the border or leaves a farm, enforcement agencies have limited capacity to act.
Plain packaging laws are not difficult to detect and punish, but little resources are given or attention is paid by the Department of Health.
The Australian Tax Office (ATO) enforcement efforts (as at 2017) for local tobacco focus on the top of the illicit tobacco supply chain. The Taskforce concluded that the ATO should seek out data about persons who procure large quantities of cigarette paper, hydroponic equipment and glasshouse components. This data could come from internet scraping and other sources.
State governments could do more to tackle illicit tobacco. They have delegated enforcement responsibility to local council health officers. These officers are unlikely to be trained or have the resources to tackle entrenched criminal enterprises.
4.7
The Black Economy Taskforce report contained a number of recommendations for addressing illicit tobacco, outlined in the table below.
Table 4.1: Black Economy Taskforce: Tobacco-related recommendations
|
Recommendation 13.1: Modernise offences that apply to illicit tobacco
Enact the tobacco control measures the Commonwealth government announced in 2016.
Locate Commonwealth illicit tobacco laws in a new Tobacco Control Act.
Create a new offence for the importation of large-scale cigarette tube filling machines and other cigarette manufacturing equipment.
Require licences for the importation of commercial quantities of cigarette tubes and papers.
|
|
Recommendation 13.2: Coordinated enforcement to combat illicit tobacco
Establish an illicit tobacco agency reporting to the Home Affairs department or create a prescribed cross agency tobacco taskforce.
Include the Department of Immigration and Border Protection (DIBP) as a ‘law enforcement agency’ for the purposes of the Surveillance Devices Act.
Conduct an enforcement blitz once improved illicit tobacco legislation has been implemented.
|
|
Recommendation 13.3: Tracing cigarettes
Government to examine feasibility of introducing technology which marks packs and cases to show when excise has been correctly paid.
|
|
Recommendation 13.4: Move the taxing point for tobacco excise
Tax tobacco at the time that it enters an Australian port.
|
|
Recommendation 13.5: Shisha tobacco
Reduce the duty on shisha tobacco so that it is taxed at approximately the same rate as cigarettes, as current weight-based tax is inconsistent.
|
Source: Black Economy Taskforce, Final Report, October 2017, pp. 308, 310–311.
4.8
The Australian Government response to the report announced a 'comprehensive package to stamp out illicit tobacco' that 'builds on the stronger penalties for illicit tobacco and increased enforcement announced in the 2016–17 Budget.' The response stated:
The new package will help prevent leakage of imported tobacco from licensed warehouses by moving the taxing point to the border and requiring a permit for importation. On-the-ground resources will support these measures and prevent other sources of illicit tobacco such as domestic tobacco crops and smuggling. Together, these measures will protect the integrity of the tobacco duty regime, remove a key source of funding for organised crime, and support existing tobacco control policies such as plain packaging.
…
This will be supported by legislation that will impose tougher penalties for possessing, buying, selling and producing illicit tobacco. This includes up to 10 years imprisonment and up to 5 times the duty that would have been payable.
Black Economy package
4.9
In the 2018–19 Budget, the Australian Government announced the 'Black Economy Package – combatting illicit tobacco' which adopted a number of recommendations from the Black Economy Taskforce 2017 report. The package targeted the three main sources of illicit tobacco in Australia: smuggling, leakage from licensed warehouses and domestic production. The package had five components, which included:
collecting tobacco duties and taxes at the border;
creation of the Illicit Tobacco Task Force;
introducing a prohibited import control for tobacco;
increased funding for the ATO to detect and destroy domestically grown illicit tobacco crops; and
upgrade of the ATO's excise payment systems.
4.10
The issues of concerns these measures addressed, and the legislative changes themselves, are discussed below.
Prosecuting offenders: place of origin
4.11
A concern raised by submitters and witnesses was that prosecutions for illicit tobacco offences required determining whether a seized illicit tobacco product originated domestically or internationally. This would in turn determine if an offence was evasion of either excise duty or customs duty, and thus allow prosecution under the correct stream. The ATO stated:
…prosecutions require illicit tobacco's origin to be proved before prosecution or penalty infringement notices can [be issued]. Where crops are located during the cultivation phase, this burden of proof can be met. If they are in the ground, that is fine. However, once cultivation has occurred the burden of proof can be difficult to meet.
…
Once it is out of the ground and chopped up in a bag, we need to prove that it was manufactured or grown in Australia. That is a very difficult, if not impossible, thing to do once it is in the retail environment.
4.12
Once a determination is made on whether an illicit tobacco product was cultivated domestically or internationally, prosecutors are then able to prosecute an offender for evasion of either excise duty or customs duty.
4.13
The then Department of Immigration and Border Protection (DIBP) now the Department of Home Affairs, explained the difficulties that arise for post-border seizures:
In the post-border environment, there are issues resulting from the existence of two separate legislative schemes for illicit tobacco, under the Customs Act 1901 and the Excise Act 1901. Illicit tobacco offences can only be successfully prosecuted if the illicit tobacco can be proved to be either imported or produced domestically; this is simple at the border, but can be difficult in the post-border environment.
4.14
The Australian Federal Police (AFP) highlighted the difficulties with the onus of proof and successful prosecutions:
…in order for an offender to be convicted under s233BABAD [smuggling etc. tobacco products] the prosecution must establish that the offender either intended to defraud the revenue (for the import offence), or knew the tobacco was imported with the intention to defraud the revenue (for the conveyance or possession offence). In practice there are often difficulties in satisfying this element of the offences.
4.15
British American Tobacco Australia (British American Tobacco) recommended changes be made to the Excise Act 1901 that 'would deem tobacco seized within the land of Australia to be tobacco that has been grown within Australia, unless it can be established otherwise' and 'the burden of proof being on the defendant to do so'.
4.16
On 23 November 2016, the committee was informed that the then DIBP, the Treasury and the ATO were working on legislative changes that will address the issue of proving the origin of illicit tobacco and the onus of proof. The DIBP advised that:
…in the future we are trying to remove the requirement to have proof of origin to be able to prosecute. So if we can remove that it does not matter whether [tobacco] has been home-grown or smuggled, it will make it easier for us to prosecute.
4.17
The ATO reported that the proposed legislative changes would 'resolve proof of origin issues for all tobacco offences so that current uncertainty about the origin of tobacco is removed'.
4.18
The Black Economy Taskforce's 2017 report noted the Australian Government had announced changes to address this issue, but that at time of reporting, those changes had not yet been implemented:
…prosecutors will no longer be required to prove whether tobacco was cultivated in Australia or imported. Further, there will be an offence where a person possesses tobacco on which it is reasonable to suspect that excise has not been paid. These changes are welcome. In particular, it is very difficult to prove whether ‘chop-chop’ was cultivated in Australia or imported, which has been a reason for there being fewer prosecutions than there should be for those caught dealing in illicit tobacco.
Prosecuting offenders: unequal penalties
4.19
Concerns were raised by multiple submitters and witnesses that an incentive to engage in domestic production of illicit tobacco was inadvertently created by the lower penalties associated with offences relating to locally grown versus imported illicit tobacco.
4.20
The Excise Act 1901 applies to domestically produced tobacco products, and includes penalties for domestic cultivation and manufacture of illicit tobacco. Those penalties in the Excise Act 1901 (Excise Act), as highlighted by the ATO, are lesser than those in the Customs Act 1901 (Customs Act) for the importation of illicit tobacco. These lesser penalties together with the agility of organised crime groups mean there is a risk that domestic production will increase. The ATO told the committee:
… organised crime groups are very adaptive and agile and look at areas of opportunity, and this may lead them to undertake greater domestic cultivation of tobacco in the future.
4.21
The ATO explained that in 2012, the government increased the penalties under the Customs Act for a person smuggling tobacco products with the intention of avoiding paying revenue. Penalties in the Customs Act:
…now include up to 10 years jail or financial penalties up to five times the evaded duty. By contrast, under the Excise Act 1901 the penalties for offences relating to unlicensed domestic cultivation, manufacturing and selling of illicit tobacco have been in place since the year 2005 and attract a maximum penalty of up to 2 years imprisonment or a fine which is the greater of either $90,000 or five times the excise evaded.
4.22
Further concerns were raised that this incentive is amplified by the increasing difficulty in importing illicit tobacco due to the greater sophistication in detection techniques utilised at Australian borders. According to Imperial Tobacco Australia, the KPMG 2015 Half Year Report indicated that the transition from imported product to domestically grown product had already begun at that point:
The supply of illicit tobacco routinely evolves to take advantage of perceived "loopholes", or in reflexive response to government activity. The KPMG report illustrates a clear shift to local growing, for instance, following Customs Act Amendments to introduce higher penalties for imported product, and increase seizure activity by Customs and Border Force.
4.23
Concerns about the differences between the Excise and Customs Acts were also raised by Philip Morris Limited (Philip Morris). Philip Morris recommended that Excise Act 1901 penalties and sentencing should be amended because they are currently inadequate and '[s]hould replicate the options available…[in] the Customs Act 1901, instead of there being an artificial distinction for what is effectively the same offence'.
4.24
In the early stages of this inquiry, the ATO informed the committee it 'considers that the overall domestic production of illicit tobacco products to be small' but did acknowledge that 'there is probably an increased opportunity or benefit for people to grow tobacco as the excise rate increases'. The ATO commented that it has an 'ongoing liaison with both the state and the federal law enforcement agencies' and a referral hotline for tax evasion. Through these sources, the ATO is actively looking for spikes in domestic growing and is subsequently seeing a 'continuing trend of low-level number of domestic growing'.
4.25
The ATO again advised the committee in December 2019 that domestically grown illicit tobacco 'is a small percentage. The far greater revenue risk is in relation to imported tobacco products.' However, seizure statistics shows that domestic seizures have made up, on average, twenty six per cent of seizures of illicit tobacco in Australia in the 2015–2019 period. For the 2011–2015 period, the average was much lower at just over ten per cent.
4.26
Statistics on the gross weight of domestic tobacco seized also shows an increase. The ATO reported seizing 35 tonnes of domestically grown illicit tobacco in the 2013–14 period and 16 tonnes in 2014–15. By contrast, the ATO has reported seizing 130 tonnes in 2019–20.
4.27
In November 2016, the then DIBP confirmed that along with the ATO and the Treasury, a number of legislative amendments were being considered to address the difference in the penalties between the excise and the customs acts. These legislative amendments were intended to create a single excise and customs tobacco post border offence regime. In addition to the proof of origin issues discussed earlier, other proposed changes included:
'a single offence regime that applies to tobacco produced or manufactured in Australia or offences occurring after importation into Australia:' and
a harmonisation 'of other tobacco provisions to the extent practical in the customs law with the new offence regime'.
Prosecuting offenders: low risk, high reward
4.28
As outlined in chapter two, a concern consistently raised by retailers, tobacco companies and government agencies was the 'low risk, high profit' nature of the illicit tobacco market, largely caused by the lower range of penalties associated with illicit tobacco offences compared to other profit-making illicit substances.
4.29
British American Tobacco advised the committee of the perception that the illicit tobacco market is a low risk crime in part because of the relatively low detection rates of illicit tobacco and that 'traffickers can make millions, with little risk of detection, prosecution or harsh punishment'. British American Tobacco further highlighted this by stating:
The reward is very high and the risk is very low because they know that, if they are caught, it is very unlikely they will serve jail time and they may get a fine. Again we come back to that point that there are some very practical legislative amendments the Commonwealth could make that would send a very strong deterrent signal.
4.30
The AFP made a similar assessment of the risk/reward imbalance:
…where you have a high profit margin, where you have a good return and potentially a low risk, organised crime will seek out any venture to make good money. And we have seen that throughout Australian law enforcement history.
Concerns addressed: Prosecuting offenders
4.31
In the 2016–17 Federal Budget, the government committed to revising excise and customs provisions to 'provide enforcement officers with access to tiered offences and appropriate penalties, increasing the range of enforcement options available for illicit tobacco offences'.
4.32
In early 2018, the Australian Government introduced the Customs Amendment (Illicit Tobacco Offences) Bill 2018 (Customs Bill) and the Treasury Laws Amendment (Illicit Tobacco Offences) Bill 2018 (Treasury Bill).
4.33
In introducing the Treasury Bill, the Minister for Revenue and Financial Services noted the bill:
…reforms the penalty and offence framework in the Excise Act 1901 (Excise Act) to more effectively combat the illicit tobacco market. With this bill the government is delivering on its 2016–17 budget commitment to address the growing risk of illicit tobacco and criminal activity.
…
This bill improves the enforcement of illicit tobacco offences by providing officers with access to tiered offences and strengthened penalties. Introducing tiered offences will give prosecutors more flexibility to bring charges against persons who have committed an illicit tobacco offence.
The bill also confirms that tobacco offences apply when the origin of the illicit tobacco cannot be established. This addresses an issue where uncertainty about whether illicit tobacco had been produced domestically or imported, has created a barrier to effective enforcement due to the requirement to determine which of the Excise Act or Customs Act was applicable.
4.34
In introducing the Customs Bill, the Minister for Law Enforcement and Cybersecurity stated:
The bill provides the means by which ABF officers can investigate and enforce the illicit tobacco offences and strengthened penalties proposed in a related bill led by the Minister for Revenue and Financial Services [Treasury Bill]. Together the two bills create a comprehensive set of offences targeting the importation, possession, purchase, sale and production of illicit tobacco.
The bill strengthens the illicit tobacco enforcement regime by allowing the ABF to investigate offences in the Treasury-led bill where the origin of the illicit tobacco is unknown. This will open opportunities to prosecute illicit tobacco offences as it will not be necessary to establish whether the illicit tobacco was imported or illegally manufactured.
…
This bill also creates new offences in the Customs Act for those who are reckless as to whether importing tobacco results in the defrauding of revenue. The standard required to establish recklessness entails a lower level of culpability than that associated with intention or knowledge, alleviating any barriers to enforcement or successful prosecution of these criminal offences which are quite often committed by organised crime syndicates to fund other criminal activities.
4.35
The Bills Digest noted this inquiry was a key driver of the proposed changes and stated:
…submissions to a [Parliamentary Joint Committee on Law Enforcement] inquiry on illicit tobacco point to some significant issues with the existing framework…The Committee received 172 submissions and conducted public hearings which revealed significant impediments to the law enforcement regime. This [Customs] Bill, together with the Treasury Bill, appears to address key terms of reference of that Committee’s inquiry.
4.36
Changes in the Customs Bill came into force on 31 August 2018. It amended the Customs Act to create two new offences in respect of imported illicit tobacco, which do not require the origin of the tobacco to be proven where it is reasonably suspected that the excise or excise equivalent customs duty has not been paid. This means it is no longer necessary to prove whether the tobacco was either illegally imported or illegally produced/manufactured domestically in order to prosecute offenders.
4.37
The change created a new offence regime that lowered:
…the standard of proof from ‘intention’ or ‘knowledge’ in defrauding the revenue to ‘recklessness’. ‘Recklessness’ entails a lower level of culpability than ‘intention’ or ‘knowledge’, alleviating barriers to enforcement or successful prosecution of existing criminal offences. Introducing offences based on recklessness will allow officers of Customs to target a wider range of participants in the illicit tobacco trade and strengthen the illicit tobacco enforcement regime.
4.38
It was noted that in conjunction with the Treasury Bill, the two bills 'will significantly amend the penalty and offence framework in the Excise Act 1901.' It was further noted the Treasury Bill 'will significantly amend the penalty and offence framework in the Excise Act 1901.'
4.39
Amendments introduced with the Treasury Bill came into force on 24 August 2018. The amendments made by the bill:
create a new tobacco offence regime that provides a comprehensive set of offences that can be applied to illicit tobacco that:
has been domestically manufactured or produced; or
for which the origin of production or manufacturing is unknown or uncertain;
create new offences for possession of equipment for producing or manufacturing illicit tobacco;
set penalties at a level to deter illegal activity;
confirm that illicit tobacco for which the origin of production or manufacturing is unknown or uncertain can be seized and forfeited; and
define tobacco to align the meaning for excise and excise-equivalent customs duty purposes so that the amount of duty on dutiable products is determined in a consistent manner.
4.40
The ATO website outlines the new penalties for tobacco offences:
Penalties for possessing more than two and less than five kilograms of illicit tobacco include:
civil penalty – this is a Penalty Infringement Notice of at least $42,000.
Penalties for possessing over five kilograms of illicit tobacco include:
criminal penalty ؎ this is a criminal conviction with a prison sentence of up to 10 years or at least a $315,000 fine or both.
Penalties for selling illicit tobacco products include:
criminal penalty – this is a criminal conviction with a prison sentence of up to five years or at least a $210,000 fine or both.
Penalties for buying illicit tobacco products include:
criminal penalty – this is a criminal conviction with a prison sentence of up to five years or at least a $210,000 fine or both.
Penalties for manufacturing or producing illicit tobacco include:
criminal penalty – this is a criminal conviction with a prison sentence of up to 10 years or at least a $315,000 fine or both.
4.41
The changes also extended relevant investigation powers in the Customs Act 1901 to allow officers of Customs to investigate certain new illicit tobacco offences that are proposed to be contained in the Taxation Administration Act 1953 and established:
…a tobacco offence regime for illicit tobacco that has been domestically manufactured or produced or for which the origin of production or manufacturing is unknown or uncertain; create new offences for possession of equipment for producing or manufacturing illicit tobacco; and adjust penalties for existing offences.
4.42
The act also amended the Excise Act 1901 to:
…allow for a person who possesses illicit tobacco to be issued with an infringement notice instead of being prosecuted for the offence in certain circumstances; clarify that illicit tobacco for which the origin of production or manufacturing is unknown or uncertain can be seized and forfeited; and define tobacco to align the meaning for excise and excise-equivalent customs duty purposes.
4.43
The office of the Commonwealth Director of Public Prosecutions informed the committee of the increased prosecutions since the changes took effect:
Since 1 July 2018, under the Customs Act provision—233BABAD—we've received 69 referrals for offences. We've commenced 67 prosecutions; 35 prosecutions have been completed in that period, of which 25 resulted in people spending full time in custody. On the amendments which were made to that section—that's to 233BABAD(2A) and (2B)—which I think came into effect in September of last year, we've had a total of nine referrals. We've commenced nine prosecutions in relation to that. We've had one outcome so far, and that resulted in full-time custody.
Importation of tobacco
4.44
Concerns were raised that tobacco can enter Australia via lawful channels, and then find its way onto the illicit tobacco market by avoiding paying relevant customs duties. This issue was raised in many submissions to this inquiry and discussed in great depth during inquiry hearings.
4.45
Until changes to the taxing arrangements outlined further below, the ATO managed the storage of tobacco products imported into Australia. These products, known as excise-equivalent goods, are subject to customs duty at the rate equivalent to excise duty. They were stored in warehouses licensed under the Customs Act and were subjected to a risk assessment conducted by the ATO.
4.46
The committee received evidence that such bonded warehouses represented a risk, that tobacco could be stolen or otherwise 'go missing' prior to the customs duty being paid.
4.47
Rohan Pike Consulting submitted that:
… many millions of cigarettes are being imported into ATO-regulated warehouses on a “duty delayed” basis and are then diverted into home consumption without the duty being paid. These warehouses are being exploited by organised crime groups with relative ease …… cigarettes are not being stolen from these warehouses, they are being smuggled out of them via a variety of methods involving poor, false or non-existent record keeping.
4.48
The Australian National Audit Office (ANAO) 2016 report Administration of Tobacco Excise Equivalent Goods discussed the reconciliation and movement of underbond (legal) tobacco products, also known as Excise Equivalent Goods (EEGs). The report identified a number of weaknesses in the capacity at that time of the ATO and DIBP to:
control the movement of underbond tobacco products; and
reconcile the goods that enter a warehouse (known as N20 Declarations) and when those goods are released for home consumption (N30 declarations).
4.49
Evidence from the ANAO highlighted the significant risk of leakage of imported tobacco products from warehouses due to the difficulties in reconciling the amount of tobacco entering a warehouse under a N20 Declaration to the amount of tobacco exiting under a N30 Declaration. The ATO had told the ANAO that a reconciliation of N20 and N30 Declarations 'is technically possible, but is resource intensive (requiring a physical stocktake of goods located in a warehouse), and seldom done'. Further, the ANAO report stated:
…the operation of the underbond system, where goods may be moved between several licensed warehouses, the deferment of customs duty until the goods are released into home consumption, and tracking of goods that may be damaged and customs duty is not payable, makes regular and accurate reconciliation of goods through the underbond system difficult to achieve.
4.50
The then DIBP informed the committee that there had been instances of underbond tobacco products being stolen from its customs depots. DIBP noted:
[Border Force] is aware of, and has undertaken a number of investigations into instances of theft of tobacco products from licensed customs depots. In some instances this has resulted in the removal of the person of interest from employment by the depot and cancellation of depot licences.
4.51
Mr Rohan Pike argued that these events were not theft, but conspiracy to avoid paying customs duty as:
…cigarettes are not being stolen from these warehouses, they are being smuggled out of them via a variety of methods involving poor, false, or non-existent record keeping. As such, the applicable offences are Customs Act smuggling offences or Criminal Code fraud offences. The nature of this offending is not well understood, nor is the relevant enforcement agency easy to identify or quick to claim responsibility for it. Since the regulation of these warehouses moved from Customs to the Tax Office, it has proved extremely difficult for agencies to keep track of the goods.
4.52
A number of changes have been made to address these concerns. Most tobacco products are now prohibited imports and require a permit issued by Border Force for both commercial and personal use, with the exception of travellers arriving on an international voyage. Importation via mail is banned with the exception of cigars, chewing tobacco and snuff up to 1.5 kilograms. Importers must now also pay the relevant duty and taxes for tobacco when it arrives at the border. These changes are outlined below.
Customs Amendment (Immediate Destruction of Illicit Tobacco) Bill 2019
4.53
As of 2 October 2019, the Comptroller-General of Customs can immediately destroy seized tobacco products, instead of storing them for at least 30 days before destruction.
Customs Amendment (Collecting Tobacco Duties at the Border) Bill 2018
4.54
As of 1 July 2019, customs duty applied to tobacco products as soon they are imported, minimising the opportunity for duty to be avoided by distributing tobacco from warehouses illicitly, prior to the imposition of tax.
Excise Tariff Amendment (Collecting Tobacco Duties at Manufacture) Bill 2018
4.55
This bill, passed in October 2019, amended the Excise Tariff Act 1921 and its Schedule to enable the calculation of excise on tobacco products manufactured in Australia due and payable at the time of manufacture, to ensure consistent treatment between imported and domestic tobacco. Noting that no tobacco manufacturing licences are currently granted in Australia, the changes are targeted to any future domestic manufacture.
4.56
Rohan Pike Consulting submitted that it is 'probably too early to tell whether these will have the desired deterrent effect to reduce the incidence of illicit tobacco importation and distribution' but also argued that while there is a legislative change to reduce 'leakage' from warehousing, there has not been any change to address the potential leakage from transhipment.
Coordinated agency approach
4.57
A key recommendation made in the early stages of this inquiry, and echoed by the Black Economy Taskforce, was the need to improve coordination between the various government agencies who deal with the issue of illicit tobacco, as well as the need for greater resourcing of those efforts.
4.58
As outlined in chapter two, the Illicit Tobacco Taskforce was established on 1 July 2018 by the Australian Government. Participating agencies include Border Force and Department of Home Affairs, the ACIC, AUSTRAC, the Commonwealth Director of Public Prosecutions, the AFP and the ATO.
Table 4.
Black Economy Package – combatting illicit tobacco
|
|
|
|
|
|
|
|
Department of Home Affairs
|
-
|
17.7
|
21.7
|
22.0
|
24.0
|
|
Australian Taxation Office
|
-
|
1.7
|
2.1
|
5.5
|
5.2
|
|
Department of the Treasury
|
-
|
1.0
|
5.5
|
12.0
|
17.0
|
|
Office of the Director of Public
Prosecutions
|
-
|
-
|
0.2
|
0.3
|
0.3
|
|
Total — Expense
|
-
|
20.3
|
29.5
|
9.8
|
46.4
|
|
Related capital ($m)
|
|
|
|
|
|
|
Department of Home Affairs
|
-
|
5.6
|
0.2
|
0.1
|
0.1
|
|
Australian Taxation Office
|
-
|
-
|
-
|
4.0
|
7.0
|
|
Total — Capital
|
-
|
5.6
|
0.2
|
4.2
|
7.2
|
Source: Budget Measures, Budget Paper No. 2, 2018–19
Additional legislative changes
4.59
A number of changes additional to the ones outlined earlier in this chapter have been made to tackle illicit tobacco in recent years, particularly in response to the Black Economy Taskforce recommendations. These additional changes are summarised below, along with an explanation of the concerns raised within this inquiry that these changes address.
Excise Tariff Amendment (Tobacco Duty Harmonisation) Bill 2017 Customs and Tariff Amendment (Tobacco Duty Harmonisation) Bill 2017
4.60
These two Bills amended the Excise Tariff Act 1921 and the Customs Tariff Act 1995 to increase the excise equivalent customs duty on roll-your-own tobacco and other tobacco products such as cigars.
Customs and excise increases
4.61
On 3 May 2016, the government announced four further annual increases of 12.5 per cent to the tobacco excise and excise equivalent customs duties starting on 1 September 2017. The ATO advised the committee in November 2016 that was monitoring the impacts that increased excise will have on the illicit tobacco market, and reported that at that time it had not seen an increase in the domestic production of illicit tobacco. The then DIBP confirmed it too was monitoring the situation. These duty rises have now all been implemented.
Tobacco Plain Packaging Amendment Bill 2018
4.62
As outlined in chapter two, the Department of Health is responsible for enforcing the Tobacco Plain Packaging Act 2011 (TPP Act) which prohibits 'the use of all tobacco industry logos, brand imagery, colours and promotional text on the retail packaging of tobacco products.'
4.63
Amendments made by the Tobacco Plain Packaging Amendment Bill 2018 came into force on 3 October 2018, widening the scope of persons that can be appointed as authorised officers to investigate breaches of the TPP Act. Previously it was only people appointed under the Public Service Act 1999 and AFP officers. TPP Act breaches can now be investigated by Commonwealth officers, state and territory police officers, and state, territory and local government officers with responsibilities for health or tobacco control matters.
4.64
The Black Economy Taskforce documented its concerns that the Department of Health had delegated field investigations to the National Measurement Institute which has limited search and seizure powers. Furthermore, while the Department of Health retained responsibility for initiating prosecutions, it had allocated limited resources to this task and as at 3 June 2017, there had been no prosecutions for improperly-packaged illicit tobacco. The Black Economy Taskforce wrote:
This is despite the legislation containing strict liability offences (relatively easy to prove) as well as fault-based offences carrying penalties of up to $420,000 per offence. We were provided with a list of 250 distributors in Victoria and NSW where tobacco was being sold for below the price of the excise which should have been charged and was therefore almost certainly illicit tobacco. Presumably, most of this is packaged in ways not consistent with the plain packaging laws. Accordingly, it would not be difficult for the Department of Health to detect and punish such activity if it were to enforce existing laws more energetically.
4.65
The AFP submitted its view that the TPP Act 'could be an effective tool in the dismantling of distribution networks of smuggled tobacco products' and outlined that as of February 2016, the Polaris Taskforce twice referred serial TPP [Act] offenders to the Department of Health. However, as outlined above, as of June 2017 the Black Economy Taskforce found that the Department of Health had not prosecuted any TPP Act offenders.
4.66
British American Tobacco Australia (British American Tobacco) also raised concerns with the delegation of investigating TPP Act breaches to the National Measurement Institute, telling the committee:
[W]e would say that the enforcement of the plain packaging act should be shifted from the National Measurement Institute, which we do not believe is necessarily well tasked to deal with the level of criminality that is involved in the illicit trade. The enforcement should be shifted across to a law enforcement agency or agencies. That would certainly be an effective measure if it were to be considered.
4.67
Members of the tobacco industry expressed concerns that the Department of Health has a limited ability to enforce and prosecute breaches of the TPP Act. However, the Department of Health declared that compliance with the TPP Act is high, with 65 per cent of cases investigated proven to be compliant; the remaining 35 per cent are awaiting formal closure after being found compliant after initial inspection. The Department of Health further submitted that as TPP Act measures are not intended to counter criminal behaviour, regulatory activities are undertaken in a conciliatory manner, aimed at quickly rectifying non-compliance. Any information the Department discovers relating to suspected illicit tobacco activity is provided to the relevant law enforcement agencies.
4.68
Philip Morris expressed concern that the Department of Health was not proactive enough in tackling illicit tobacco as part of the overall tobacco use reduction strategies, and told the committee that:
Australia is the only country I am aware of where the department of health refuses to deal with the problem of illicit trade in any way. In every other country I am aware of, it is actually seen as part of the tobacco control process, and indeed the World Health Organization has promoted a treaty for that purpose as well. Australia is the only place where the Department of Health takes that attitude.
4.69
The Department of Health informed the committee that these views do not appropriately reflect the fact that it does not have responsibility for addressing the law enforcement aspects of illicit tobacco, as it approaches this issue entirely from the health aspects:
Although the department takes a significant interest in illicit tobacco and the market drivers that influence illicit trade, it does so from a health perspective, because our interest is insuring consumers are provided with the full suite of government strategies to reduce smoking prevalence and tobacco consumption in Australia.
4.70
Ideas raised by submitters and witnesses for further work that could be done by Australian governments to reduce the size of the illicit tobacco market are outlined in chapter four.
Committee view
4.71
A number of changes have been made in recent years by the Australian Government to legislation relevant to illicit tobacco. Many of these changes have been in direct response to address issues of concern raised within this inquiry. These changes have:
Increased penalties for convicted offenders;
Made it easier to prosecute illicit tobacco offences;
Closed loopholes that allowed for tobacco to be smuggled out of warehouses before taxes were paid; and
Ensured confiscated illicit tobacco is immediately destroyed and cannot find its way back to the marketplace.
4.72
In addition to the changes, there has been a significantly more sophisticated approach to interdepartmental collaboration, with the establishment of the Illicit Tobacco Taskforce, led by the Department of Home Affairs.
4.73
The committee welcomes these changes, while noting that the effectiveness of the changes remains to be seen. However, as illicit tobacco remains a serious problem in Australia, clearly there is more work to be done. The Committee’s suggestions for the next phase of reform, including the role of the states and territories, will be considered in the next chapter.