An industry-funded study claims illicit tobacco now makes up more than a quarter of the NZ market. Customs questions the figure but admits illegal sales have grown substantially in the last three years. Melissa Nightingale reports.
A small-time illicit tobacco seller says illegal cigarettes are flooding the market because “they’re so easy to get”.
The Canterbury man buys packs from the corner dairy for about $20 less than he would pay for legal packs and sells them on to a small circle for a $5 profit.
He is just one small drop in the bucket when it comes to New Zealand’s illicit tobacco industry. A new study claims more than a quarter of all tobacco consumed last year was illicit, cheating the Government out of $600 million in tax revenue.
The annual study, commissioned by Imperial Tobacco New Zealand and British American Tobacco New Zealand, found that 27.2% of all tobacco consumed in 2024 was from illicit products, including smuggled contraband.
The study also showed a sharp rise in the consumption of contraband tobacco compared with last year, climbing nearly 42%, from 205.4 tonnes to 291.5.
Most of the illicit tobacco in the market is smuggled in as cigarettes, while smaller percentages are loose-leafed, illegally homegrown or are counterfeits designed to look like legitimate brands.
An Imperial Brands spokesman said the report highlighted how the illicit tobacco trade was “increasingly sophisticated” and risked becoming “deeply entrenched across the country”.
The New Zealand Customs Service said the figure in the report seemed “too high”, but did not have a “robust estimate” for how big the market truly was.
The Canterbury illicit tobacco seller who spoke to the Herald said he smokes about a pack a day himself and that buying contraband cigarettes was “a lot cheaper” and easier.
“I know quite a few people that are in the same boat. People aren’t wanting to pay nearly $40 a pack,” he said.
“I can’t imagine the person I’m getting them off is getting them much cheaper than he’s giving them to me.”
He said the cigarettes could be found at “most little dodgy dairies” where he lived, but that he had also found them in Auckland and Wellington.
“They’re flooding the market because they are so much more affordable. They’re also easy to access. Now, just everyone seems to be smoking them,” he said.
“We’re in a cost-of-living crisis, everyone’s broke, they’re always going to be more keen to get it for a cheaper price.”
The man didn’t feel there was much that could be done to stem the flow of contraband into the country.
“If they want the illegal cigarettes to slow down, they need to bring the tax down, but that’s not viable, that won’t happen.”
There would be plenty of people like him who found someone to buy them off, he said.
“I don’t think it’s worth police resources to crack down on it that much. I think cigarettes are a pretty small fish to fry.”
Excise tax on tobacco has increased to $1812.61 per kilo compared with $393.03 in 2009. Depending on the brand, the tax makes up around 80% of the cost of a pack of smokes.
Imperial Brands head of corporate and legal affairs for Australasia, James Bigwood, said the recent report “highlights a clear and concerning trend”.
The local illicit tobacco market was growing rapidly and becoming increasingly sophisticated, Bigwood said.
“Without decisive action now, the trade in illicit tobacco risks becoming deeply entrenched across the country.”
International experience showed that a multi-agency approach worked best, Bigwood said.
“Australia, for example, recently announced a National Disruption Group and have appointed an Illicit Tobacco and E-Cigarette Commissioner to co-ordinate a whole-of-Government response. State governments have introduced tougher penalties and implemented dedicated enforcement frameworks. Acting early will help prevent the problem from escalating further.”
Bigwood said the trend that illicit tobacco consumption was rising each year was “undeniable”.
While commissioned by tobacco companies, the research was carried out by an independent consultancy using established methods and used “robust methodologies”, he said.
It was “one of the few studies that captures all four categories of illicit tobacco—counterfeit, contraband, homegrown and unbranded products".
The study uses data from a biannual Kantar survey of smokers over 18 and an empty pack survey carried out twice a year in the country’s six largest cities. The figures gathered from these surveys are cross-referenced with other data sources, including legal domestic tobacco sales, international traveller volumes and Customs interceptions.
Latest estimates indicate illicit tobacco makes up nearly 40% of Australia’s market and New Zealand tends to follow Australia’s trends with a one-year lag, the report said, warning his country risked seeing similar numbers.
“Australia’s experience is a warning. Despite ongoing efforts to address the problem, the illicit tobacco market remains deeply entrenched and linked to organised crime,” Bigwood said.
“New Zealand still has an opportunity to act decisively and prevent the same outcome.”
A Customs spokeswoman said estimating the size of the illicit tobacco market was “inherently challenging” due to the covert nature of the activity and the limitations of available data.
“By their nature, illegal markets are deliberately organised to be hidden,” said Debbie Kay.
“While Customs do not have a robust estimate of the size of the illicit market, 27.2% feels too high to us,” Kay said, noting in 2022, Customs’ working estimate was that illicit tobacco had a market share of 6-7%, equating to about $175m in taxes not being paid to the Crown.
“Given the trend of increasing seizures, it appears likely that the illicit market will have grown materially since then.”
A variety of studies come up with a wide range of estimates and many methodologies could have large margins of error. Customs also noted that there were illicit tobacco markets in every country, including ones with low excise rates.
The illicit market was a “persistent and evolving threat” and continued investment in border enforcement, intelligence-gathering and inter-agency collaboration was essential to combat the risks posed by the trade, Kay said.
Evading taxes on tobacco was cheating the Government out of money that could fund health, education and infrastructure, and was also generating “significant profit” for organised criminal groups.
In the 2022 Budget, Customs was allocated an additional $10.4m in funding over four years to help tackle tobacco smugglers.
“This is resulting in seizures and prosecutions,” Kay said.
In August, a man was arrested for allegedly importing nearly one million uncustomed cigarettes into New Zealand and avoiding a tax bill of $1.4m.
Customs officers intercepted two shipments from China at NZ Post’s Auckland Processing Centre. They discovered the consignments, which were declared as clothes, had instead been filled with packets of the Chinese cigarette brand Double Happiness.
The first shipment contained 340,000 cigarettes, while the second had 587,000, bringing the number of cigarettes seized to 927,000.
Melissa Nightingale is a Wellington-based reporter who covers crime, justice and news in the capital. She joined the Herald in 2016 and has worked as a journalist for 10 years.