Duty-free tobacco allowances will be cut from 200 cigarettes to 50 cigarettes later this year, Associate Health Minister Tariana Turia has confirmed.
Next week's budget would also introduce duty taxes and GST for tobacco sent from overseas, which is currently tax-free.
Mrs Turia said youth smoking rates were falling, but smoking still caused 5000 premature deaths a year.
She said it was an anomaly that Government was raising tobacco prices but still offering 10 duty-free packs of cigarettes to every adult who came into New Zealand.
The price differential between duty-free tobacco and retail tobacco was expected to become more pronounced as annual tax hikes kicked in.
Government considered scrapping the duty-free allowance altogether, but has decided to cut it to 50 cigarettes, 50g of loose tobacco or 50g of cigars, beginning in November.
Mrs Turia said: "Completely removing the duty-free concessions would mean that smokers, who might have a packet or two of cigarettes on them when going through Customs, had to either dump them or declare them and pay duty.''
"If they did neither, they would risk prosecution and seizure of the goods.''
The changes would raise $50 million in additional revenue per year.
Budget 2014 would allocate $2.7 million to Customs to respond to the changes.
The gift concession for tobacco - which allowed tobacco to be sent from overseas tax and GST-free - would be scrapped.
The move was one of a range of changes designed to make New Zealand smoke-free by 2025, including annual tax hikes and proposals for plain packaging of tobacco.