[Intl-tobacco] Australia: Illegal cigarette scam costs $600m in tax (fwd)

[Robert Weissman]

Illegal cigarette scam costs $600m in tax
by ADRIAN BRADLEY
Source: News Interactive Network/News Limited, Sunday, 3/25/01

ILLEGAL cigarettes costing half the price of legitimate tobacco products
have flooded into Sydney over the past 18 months, a special investigation
has found.

The illegal trade in cigarettes is costing the Federal Government an
estimated $600 million a year in unpaid excise, The Sunday Telegraph can
reveal.

By next year, the Australian Tax Office and the tobacco industry estimate
taxpayers will lose $1.1 billion to the criminal trade.

Treasury raises $6 billion each year in tax levied on the sale of 26
billion cigarettes.

Assistant tax commissioner for excise, John McNamara, said the underground
market had alarmed authorities.

"It's a big problem and we're doing our best to stop it," Mr McNamara
said.  "The price of cigarettes has steadily increased over the past few
years so the sale of illegal products is very lucrative.

"The more lucrative it is the greater the incentive for people to get
involved."

The Government misses out on $7.56 in tax every time a pack of counterfeit
Peter Jackson 30s changes hands.

The lost revenue would pay for a new community centre or 1000 school
computers every day.

The annual drain is equal to $30 in lost tax revenue for every man, woman
and child in Australia.

The Sunday Telegraph approached ten Sydney tobacconists and asked to buy
cheap cigarettes.

 Nine of them happily supplied illegal cigarettes at prices well below
what is paid for the legal product.

Meanwhile, threats, intimidation and even a murder were linked to the
blackmarket trade, according to British American Tobacco corporate and
regulatory affairs director Brendan Brady.

"Government, honest retailers, growers and manufacturers are fighting a
battle against unscrupulous operators who are cashing in on the thriving
blackmarket,"  he said.

"The profitability of the illegal tobacco trade has attracted the interest
of the criminal world, which presents a real danger to the safety of
retailers and consumers alike."

Industry estimates claim trade is so widespread that up to 60 per cent of
Sydney's tobacconists are peddling phony products.

Demand has risen sharply since legitimate cigarette prices rose 30 per
cent in 18 months in response to new excise increases.

Police and customs officers said most counterfeit cigarettes being sold
across Sydney and Melbourne are imported by Chinese crime syndicates
working with Lebanese gangs who control distribution.

While the rival gangs are at present co-operating, senior law enforcement
officers told The Sunday Telegraph that the relationship was showing
worrying signs of friction.

A restricted international briefing paper obtained by The Sunday Telegraph
indicates the problem is set to worsen. It reveals that underground
factories in China, the world's biggest tobacco consumer, are producing up
to 100 billion cigarettes a year, enough to supply the entire Australian
market four times over.

The fake cigarettes are swamping overseas markets, including Australia.

"It is widely recognised that in recent years counterfeit cigarette
production in China, both of national and imported international brands,
is rising at an alarming rate," the report said. "One of the results of
the Chinese authorities' crackdown on the counterfeiting trade has been an
upsurge in the export of counterfeit cigarettes -- replacing those that
have been forced off the domestic market.

"Indications are that this activity will increase."

 Prices are cheap because syndicates do not pay any of the punitive 70 per
cent tobacco taxes.

While ethical retailers cannot compete on price, not everyone in the
underground business is celebrating. "I don't want to break the law but if
I don't then the guy down the road will and I'll lose out," an outer-west
retailer told The Sunday Telegraph.

"The prices are so cheap and people don't want to pay, so they go where
it's cheap."

Health is another concern as consumers cannot always be certain about what
they are buying.

Some tobacco from South-East Asia is grown in human excrement, while tar
and nicotine content is unknown.