Illegal products now make up roughly half of all tobacco sold in Australia. Photo credit: Ahsanjaya, Pexels.
At least half of Australia’s tobacco market now consists of illicit cigarettes, costing taxpayers up to A$11.8 billion (US$7.8 billion) a year and surpassing the revenue the government collects from legal tobacco sales, according to new figures that have intensified debate over tobacco excise policy.
Fresh analysis from the Illicit Tobacco & E-cigarette Commissioner (ITEC) shows the black market has grown to at least twice the size previously estimated and up to 4 times larger than earlier official figures suggested. The findings mark the first formal acknowledgement that organized crime groups control close to half of Australia’s tobacco market, a claim long made by industry analysts.
New estimates put foregone excise from illicit cigarettes and vapes at between A$7.7 billion and A$11.8 billion (US$5.1 billion to US$7.8 billion), compared with about A$7.7 billion (US$5.1 billion) collected from lawful tobacco sales. Earlier assessments by agencies including the Australian Criminal Intelligence Commission (ACIC) and the Australian Taxation Office (ATO) had placed the annual loss at roughly A$3 billion (US$2 billion).
“Estimated excise evaded ranges from A$7.7 billion to A$11.8 billion,” ITEC said in its 2024–25 report.
“The revenue loss estimates assume that, in the absence of illicit tobacco, consumers would purchase an equivalent quantity of legal tobacco. However, this assumption may not hold in practice, as consumer behavior is price-sensitive, and substitution between illicit tobacco and alternatives (such as vapes or quitting altogether) is uncertain.”
The report arrives amid growing pressure on federal finances. Treasurer Jim Chalmers has warned of “difficult decisions” ahead of the Mid-Year Economic and Fiscal Outlook (MYEFO), as weaker iron ore and coal exports force Canberra to search for new revenue sources. Since 2020, federal tobacco excise revenue has fallen by an estimated A$43 billion (US$28.4 billion), even as excise rates continued to rise.
In October, ATO estimated that illicit tobacco accounted for about 20% of sales nationwide, up from 8% in 2018–19. ITEC commissioner Amber Shuhyta said newer evidence pointed to a much larger share, with illegal products now making up roughly half of all tobacco sold in Australia.
She warned that illicit tobacco and vapes pose a growing threat to public health, community safety and the economy, and require coordinated action across governments.
“A clear view has emerged that there is no single solution to addressing the illicit market,” she said.
“Instead, a multipronged approach is needed across the ecosystem, from supply to demand.”
ITEC valued the illicit tobacco and vape market itself at between A$5.7 billion and A$8.5 billion (US$3.8 billion to US$5.6 billion). The commissioner noted that tobacco taxes now exceed the value of the illicit market, which explains why estimated excise losses run higher than the market’s street value. By some estimates, illegal nicotine products account for between 32% and 42% of Australia’s entire illegal drug trade.
The report identified several drivers behind the expansion of the black market, including strong consumer demand—particularly among younger users seeking vapes—the price impact of high excise rates, tax evasion and money laundering, low public awareness of links to organized crime, and penalties that fail to deter offenders.
The commissioner urged governments to pursue tougher penalties, increased policing and new laws specifically targeting illicit tobacco.
“This could mirror efforts in other serious and organized crime spaces, such as the fight against outlaw motorcycle gangs,” the report said.
ITEC also linked the rapid growth of the illicit trade to “highly visible incidents of violence,” including homicides, extortion and arson attacks on businesses connected to illegal tobacco. The agency said criminal networks favor tobacco and vapes partly because penalties remain lower than those for other illicit commodities, despite similar trafficking methods.
The scale of the illegal market stands in stark contrast to trends in legal consumption. ITEC noted that smoking rates have fallen “markedly” over the past 3 decades “resulted of sustained health initiatives effectively reducing demand.” Even so, legal tobacco imports have collapsed far faster than consumption.
From 2022–23 to 2024–25, legal tobacco clearances fell by more than 50%, dropping to 3,975 ton in 2024–25. Over the same period, enforcement agencies sharply increased seizures of illicit product.
In 2024–25 alone, state and territory agencies, the Australian Border Force (ABF), ATO and the Therapeutic Goods Administration (TGA) seized a record 2,244 tons of illegal tobacco. The haul included 2.66 billion cigarettes, 509 tons of loose-leaf tobacco, and 7.5 million e-cigarettes.
“Seizures during 2024-25 represent 61% of legal cigarette clearances during the year and 54% of loose-leaf tobacco clearances,” ITEC said.
“Illicit tobacco seizures for 2024-25 represent a street value of illicit cigarettes and loose-leaf tobacco totaling A$3 billion” (US$2.0 billion).
Australia largely banned vapes in July 2024, restricting legal sales to prescription-only purchases through pharmacies. ITEC said stockpiling ahead of the ban makes it difficult to accurately size the e-cigarette market.
The findings have reignited debate over whether Australia’s high tobacco excise has helped fuel the black market. Excise rates have risen by about 50% since 2020, reinforcing Australia’s status as one of the most expensive countries in the world for smokers. A legal pack of 20 cigarettes now costs more than A$40 (US$26), with a federal excise of A$1.49 per cigarette (US$0.98) after a further 5% increase in September. Illegal packs, by contrast, often sell for A$12 or less (US$8).
Many analysts argue the sharp rise in excise has driven consumers toward illegal products. While the commissioner acknowledged higher excise has contributed to the problem, she cautioned against cutting the tax.
“Entering into a price competition with the illicit market could lead to adverse health outcomes and undo successive generations of government policy to driven down smoking rates,” the report said.