Government 'butt-squad' to chase billions in criminal tobacco fraud

The Turnbull government has unveiled a plan to recover billions of dollars being lost to federal coffers from a combination of undetected tobacco imports, illegal tobacco crops known as "chop chop" and a thriving black market in stolen, untaxed cigarettes.

Revenue and Financial Services Minister Kelly O'Dwyer said a flourishing illegal trade was costing taxpayers billions while the proceeds were going on to fund other criminal activities.

Revenue and Financial Services Minister Kelly O'Dwyer on Insiders recently

The government expects to increase revenue through a suite of new measures by $3.6 billion over four years.

It estimates that 864 tonnes of illicit tobacco escapes duty each year.

The Australian Taxation Office will be given expanded powers to charge tobacco duties and other tax liabilities on cigarettes when they enter the country rather than when the product leaves a licensed warehouse in Australia destined for the retail market.

And a new multi-agency Tobacco Taskforce, to be formally announced in the budget on Tuesday, will crack down on criminal gangs and organised crime syndicates which each year, move a staggering amount of the product beyond the taxman's reach in the black economy.

To be led by the Australian Border Force, the Tobacco Taskforce's operating brief will be to enforce the toughened laws and to "dismantle illicit tobacco supply chains".

Authorities believe significant quantities of cigarettes are illegally removed from tobacco warehouses for sale on the black market. Some of this theft may be piecemeal by employees, but larger-scale removal of cigarettes from warehouses is also occurring.

To address this "leakage", a tightened regulatory framework will ensure the integrity of the tobacco duty regime and new resources will be provided to the ATO to meet the challenge of home-grown supply for the illicit tobacco trade.

Among those changes will be a new requirement to obtain a permit to import tobacco.

The government says it has seized an estimated 98 tonnes of illicit tobacco this financial year alone, which would have netted the taxpayer almost $90 million in revenue had it been sold legally.

In a single operation in Queensland, 31 tonnes was seized, which would have netted $29 million in duty. In Victoria, $48 million has been foregone on the tobacco seized, which weighed in at a nation-leading 53 tonnes. Seizures in NSW so far this year have accounted for 14 tonnes or $13 million in foregone revenue.

The previous financial year, the ATO seized 117 tonnes at an estimated total value in terms of duty of $90 million.

Estimates from the Department of Home Affairs and the ATO say this is merely a fraction of the total revenue foregone each year, which is as high as $600 million.

In January this year, three people allegedly connected to a tobacco smuggling syndicate operating through Melbourne Airport's international terminal were charged in relation to a haul of 1 million cigarettes. Authorities say that had a street value of $682,500 and would have raised duties close to three-quarters of a million dollars if sold legally.

In another instance, Australian Border Force officers in conjunction with the Australian Federal Police's Criminal Assets Confiscation Taskforce, seized luxury vehicles, jewellery and $9 million in cash regarded as the proceeds of crime.

Ms O'Dwyer said the extent of the problem called for even tougher anti-corruption measures, particularly because criminals operating in the tobacco black market were using it to finance other off-book endeavours.

"The illicit tobacco market is dominated by organised crime groups, which use tobacco profits to fund their other criminal and black economy activities,” she said.

“These strong new measures will shut down the avenues that organised crime syndicates have to access illicit tobacco to fund criminal activity.”

The changes build on those introduced in legislation earlier this year dealing with illicit tobacco offences, which included tougher penalties for tobacco-related offences of up to 10 years' imprisonment.

Government figures revealed the ATO had undertaken 26 operations since July 2016 in which the seizure and destruction of 215 tonnes of illicit tobacco had occurred. It said this would have netted $179 million in tobacco duty. Over the same time, the ATO had executed 55 warrants relating to breaches of the Excise Act.

The attraction of black market cigarettes has grown because of the ease with which successive governments have increased imposts without fear of political backlash.

In his first budget in 2016, Treasurer Scott Morrison announced an annual 12.5 per cent rise in tobacco excise for each of the next four years. This continued the sharp upward trajectory of cigarette prices which have climbed by more than 340 per cent since 1996.

The crackdown on illegal tobacco is unlikely to garner any opposition within Parliament with all major parties aware of the lethal risks of smoking.

On Friday, Mr Morrison announced a tax reduction for the smaller capacity beer kegs favoured by craft beer makers, putting them on a par with the larger ones used by the major brewers.