Tobacco Excise

Page last updated: 15 August 2017

Tobacco use is estimated to kill almost 19,000 Australians every year and remains the leading cause of preventable death and disability in Australia1.

Under Article 6 of the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC), Australia is obligated to implement tax and price measures to reduce the demand for tobacco. The Australian Government’s position on tobacco taxes is consistent with recommendations by the WHO regarding the taxation of tobacco products.

Australia has a comprehensive suite of evidence-based initiatives to reduce smoking. Price measures are only one component of Australia’s national tobacco control strategy.

Evidence suggests that the price of tobacco products does encourage existing smokers to quit and is a barrier for people considering taking up smoking, especially young people. The Government influences the price of tobacco through increases in tobacco excises and excise equivalent customs duty.

Research by the International Agency for Cancer reported that high-income countries generally find that a 10 per cent price increase will reduce overall tobacco use by 4 per cent on average.

The Government subsidises a range of medicines to assist people to quit smoking on the Pharmaceutical Benefits Scheme (PBS). These subsidies help remove cost as a barrier for people who want to take the important step of quitting smoking.

Significant progress has been made over the last two decades to reduce smoking in Australia. In December 2015, the Australian Bureau of Statistics released the National Health Survey (NHS): First Results, 2014-152, which showed that 14.5 per cent (14.7 per cent age-standardised) of adults aged 18 years and over were daily smokers, decreasing from 16.1 per cent (16.3 per cent age-standardised) in 2011-123.

The tobacco industry has attempted to establish a link between increases in tobacco taxes and other tobacco control interventions with the availability of illicit tobacco in Australia. Australia has a strong and active enforcement regime aimed at combating trade in illicit tobacco products.

Importation of tobacco products is regulated by the Department of Immigration and Border Protection. All tobacco imported into Australia must be fully declared and is subject to the payment of duty and GST. This excludes the international travellers duty free allowance of 50 cigarettes or 50 grams of cigars or tobacco products, which from 1 July 2017 will be reduced to 25 cigarettes or equivalent tobacco products.

Since 2006, there has been no commercial production licence issued for growing tobacco by the Australian Commissioner of Taxation, therefore, no one is licensed to grow tobacco for commercial sale or personal use. There are serious penalties for growing tobacco without a licence.

The issue of illicit tobacco is first and foremost a revenue evasion matter that attracts significant penalties under the Customs Act 1901 and the Excise Act 1901. Tobacco smuggling is punishable by fines and up to 10 years imprisonment.

The Australian Government began implementing staged annual 12.5 per cent tobacco excise increases and excise-equivalent customs duty on tobacco and tobacco-related products on 1 December 2013, followed by additional 12.5 per cent increases on 1 September 2014, 2015 and 2016. These annual excise increases will continue between 2017 and 2020. In addition, Australia is the only country in the world to index tobacco excise to wage inflation (average weekly ordinary time earnings) to ensure that tobacco products do not become relatively more affordable over time (see discussion of this in the WHO Report on the Global Tobacco Epidemic, 2015, available on the WHO website.

The Government announced in the 2017-18 Budget that ‘roll-your-own’ and other tobacco products such as cigars will be subject to comparable tax treatment to manufactured cigarettes. It is intended that the measure will ensure fairness and efficiency in tobacco taxes by harmonising the taxation of roll-your-own tobacco products with manufactured cigarettes.

Australia is a Party to the WHO FCTC, and under Article 6 of the Convention, ‘The Parties recognize that price and tax measures are an effective and important means of reducing tobacco consumption by various segments of the population, in particular young persons.’

The WHO recommends that tobacco excise taxes (excluding other taxes) should account for at least 70 per cent of the retail price of tobacco products.

In Australia, as of 1 March 2017 4, 5, the tobacco excise applied to five leading brands of manufactured cigarettes ranged from 52 to 60 per cent of the total recommended retail price of these products, with total taxes (tobacco excise plus GST) ranging from 61 to 69 per cent of the recommended total retail price6.

The tobacco excise applied to four leading brands of roll-your-own tobacco ranged from 60 to 62 per cent of the total recommended retail price of these products, with total taxes ranging from 70 to 72 per cent of the total recommended retail price7. Whilst the Government has been active in raising the excise on tobacco products, the tobacco industry routinely increases its prices, which affects the Government’s ability to maintain this ratio.

Nicotine Replacement Therapies
Nicotine patches, available in several brands and strengths, are available on the PBS for all eligible Australians (including concession cardholders). In addition to nicotine replacement therapies, the Australian Government also subsidises bupropion (Zyban®) and varenicline (Champix®) through the PBS to aid in smoking cessation.

From 1 January 2017, concessional patients (such as pensioners) pay $6.30 per PBS prescription and general patients pay $38.80. These products may be prescribed by medical or nurse practitioners.

1 Australian Institute of Health and Welfare 2016. Australian Burden of Disease Study: Impact and causes of illness and death in Australia 2011. Australian Burden of Disease Study series no. 3. BOD 4. Canberra: AIHW.
2 ABS National Health Survey: First Results 2014-15 Available on the ABS website.
3 Key Findings from the 2016 National Drug Strategy Household Survey (NDSHS) released on 1 June 2017 shows that in Australia daily smokers aged 14 years and over declined from 24.3 per cent in 1991 to 12.2 per cent in 2016.
4 These estimates are subject to a number of limitations, particularly if used in isolation to monitor Australia’s progress in reducing the affordability of tobacco products. They do not necessarily reflect the variable price of a particular tobacco product paid by a consumer at the retail level.
5 Estimates based on market share (volume) data as at 2015 from Euromonitor International. Further information is available on the Tobacco in Australia website.
6 Estimates based on recommended retail price list of Winfield 25s, Longbeach 30s, Horizon 30s JPS 26s and Peter Jackson 25s, available on the Patterson Road website.
7 Estimates based on the recommended retail price list for 50g packs of Champion Ruby, Winfield, Drum and White Ox, available on the Patterson Road website.

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