Tobacco taxation

Tobacco excise arrangements in Australia since 1901.

Page last updated: 18 April 2018

The history of tobacco excise arrangements in Australia since 1901

The Australian Government has imposed an excise tax on tobacco products since 1901. Until 1 November 1999, an excise duty was levied according to the weight of the manufactured tobacco product: in the case of cigarettes, on the total weight of the cigarette (i.e. including paper and filter but not packaging); for loose tobacco, on the weight of the tobacco alone, again without packaging.

To maintain the real price of cigarettes, federal excise increased every six months in line with the Consumer Price Index (CPI). The Australian Government instituted a series of increases in the real excise level on tobacco products from 1993 to 1995.

On 5 August 1997, the High Court of Australia handed down its decision in the case of Ngo Ngo Ha v the State of New South Wales. The Court found the states and territories did not have the power to levy tobacco franchise fees, as they constituted an excise in contravention of section 90 of the Constitution.

As a result of the High Court’s decision, the Commonwealth introduced a safety net for the states and territories revenue base by collecting the revenue that was generated through state franchise fees on behalf of the states, and returning it to them for their distribution. These arrangements were complex and consisted of both a weight-based and ad-valorem surcharge.

In 1997-98 Commonwealth excise collections on behalf of the states and territories were approximately $2.4 billion, which grew to approximately $3 billion in 1998-99.

In August 1998, the Australian Government announced its decision to introduce a 'per stick' tobacco excise system to replace the existing weight-based system. Final details on the implementation of this announcement were released on 3 February 1999. Although the 'per stick' scheme was to be introduced on 1 July 1999, it was not introduced until 1 November 1999 in order to enable tobacco manufacturers’ sufficient time to implement the required changes. Cigarette prices rose as a result of the introduction of the per stick excise duty in November 1999. A further price rise occurred with the introduction of the Goods and Services Tax (GST) on 1 July 2000.

The weight-based excise system enabled manufacturers to minimise costs by reducing the weight of each cigarette and packaging more cigarettes in larger packs. These cigarettes were much cheaper per cigarette and attractive to price sensitive smokers including young people and people from low socio-economic backgrounds. The introduction of the per-stick system ensured that the price of premium brand cigarettes did not fall in price but high volume, low weight cigarettes rose in price.

The single rate 'per stick' excise applies to all cigarettes with a tobacco content up to and including 0.8 grams per cigarette. An excise per kilogram of tobacco applies to all other tobacco products, including cigarettes heavier than 0.8 grams of tobacco per cigarette, loose tobacco and cigars.

Following a recommendation by the National Preventative Health Taskforce, from midnight on 29 April 2010, the Australian Government increased the excise and excise-equivalent customs duty rate applying to tobacco products by 25%. The excise on cigarettes was increased from $0.2622 to $0.32775 per stick and the excise on loose leaf tobacco was increased from $327.77 to $409.71 per kilogram.

Effective from 1 March 2014, the federal excise on tobacco was changed from bi-annual indexation based on the Consumer Price Index (CPI) to bi-annual indexation based on average weekly ordinary time earnings (AWOTE).

Australia is the only country in the world to index tobacco excise to wage inflation (AWOTE) to ensure that tobacco products do not become relatively more affordable over time. See the discussion on this in the WHO Report on the Global Tobacco Epidemic - 2015.

Australia is a Party to the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC), and under Article 6 of the Convention, ‘The Parties recognise 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% of the retail price of tobacco products.

Tobacco excise increases

Increasing tobacco prices, through taxation, is one of the most effective measures that governments can take to reduce premature death and disease due to smoking.1 Price increases on tobacco products reduce cigarette consumption, increase attempts to quit and reduce smoking prevalence.

Also, increasing the prices of tobacco products through taxes is widely recognised as one of the most effective (and cost effective) tobacco control interventions for reducing tobacco use, and is particularly effective among youth and people from lower socio-economic groups.

The Government began implementing staged annual 12.5% tobacco excise increases and excise-equivalent customs duty on tobacco and tobacco-related products on 1 December 2013, followed by additional 12.5% increases on 1 September 2014, 2015, 2016 and 2017.

The Government announced in the 2017-18 Budget that these annual excise increases will continue between 2018 and 2020.

Also, as part of the 2017-18 Federal Budget, ‘roll-your-own’ and other tobacco products such as cigars will be subject to the same tax treatment as manufactured cigarettes. It is intended that this measure will ensure fairness and efficiency in tobacco taxes by bringing the taxation of roll-your-own tobacco products in line with manufactured cigarettes.

If you would like further information relating to tobacco excise, please contact The Treasury from the details on the Treasury website .

Note: Further information on tobacco excise is available from: Tobacco in Australia website.

1 International Agency for Research on Cancer (2011). Chapter 7. Tax, price and tobacco use among the poor, in Effectiveness of tax and price policies for tobacco control, IARC: Lyon, France. Available from the International Agency for Research on Cancer website.