View Article PDF

Duty-free and smuggled tobacco are a public health problem because they lower the average price of tobacco. This undermines the impact of high tobacco product taxes in promoting smoking cessation and reducing smoking initiation. Wilson et al carried out a discarded pack collection study in New Zealand in 2008/09 to assess the proportion of discarded packs which were foreign (duty-free, foreign normal retail and smuggled) and to estimate the missed Government tax revenue.1 We performed a similar pack collection project between November 2012 and January 2013, allowing us to draw comparisons between the two studies.Methods—A total of 1776 packs were collected from 7 locations across New Zealand, with the majority collected in the Christchurch, Wellington and Nelson/Marlborough regions. ‘Foreign' status was determined by: A lack of the distinctive graphic health warnings required in New Zealand; and The lack of the use of Māori language as part of the warning. As in the 2008/09 study, we assumed that any foreign packs found represented a pack not bought in a New Zealand store, therefore representing lost Government revenue.We estimated lost Government revenue by multiplying the 2012 total tobacco tax take of $1242 million of excise/customs duty, plus estimated goods and services tax (GST) of $294 million (total $1536 million) by the proportion of foreign packs collected. We used the mid-range (55%) of the New Zealand's Treasury's estimate that tobacco excise is approximately 50%-60% of the total GST-inclusive retail price of tobacco to estimate GST revenue from tobacco products.2Results & Discussion—In 2012/13 there were 1673 (94.2%) ‘New Zealand' packs, and 103 (5.8%) foreign packs. In comparison in 2008/9, 42 out of 1310 NZ (3.2%) were foreign packs. Australian packs were the most common in both studies (45% of foreign packs in 2008/9 and 39% in 2012/13). The second commonest country of origin was China. The proportion of foreign packs from China in 2012/13 (26%) was greater than in 2008/9 (17%). The remainder of the packs came from a diverse range of countries, with between one and four packs each from 14 different countries. In 12 cases (12%) the origin of the pack could not be determined. There was no obvious clustering among the foreign packs collectively or by country of origin by manufacturer or brand, but it was noteworthy that of the Australian origin packs, over half (57%) were manufactured by Chinese tobacco companies.Over half (53%) of the foreign packs collected were from Christchurch (9.5% of packs collected here were foreign), and in particular from Riccarton Road where there is a high density of Asian cuisine restaurants. In this area, just over 29% of collected packs were foreign, with most (69%) being Chinese foreign packs or Chinese manufactured packs from Australia (13%).We estimated a loss of $89.1 million tobacco-related revenue per year for 2012. The equivalent estimate from the 2008/09 study was $36 million. Due to an underestimate in that study of the amount of tobacco-related GST revenue, which has since emerged, we now estimate this to be $38 million.Both these estimates of lost revenue are conservative as they do not include the excise duty and GST lost due to duty-free tobacco bought in New Zealand airports by arriving passengers. These packs will have standard New Zealand health warnings and hence are indistinguishable from other packs sold with duty paid in New Zealand.Some foreign packs may have been the current pack bought overseas and brought into the country by short-stay tourists and so less clearly represent lost revenue. However, this will be a very small contribution particularly as our main collection areas—Wellington and Christchurch regions (86% of packs collected)—are not top tourist areas.A possible bias is that the high proportion of foreign packs found around the Riccarton Road, or more generally in Christchurch, may have caused an overestimate of tax lost. This would occur if the pattern of packs collected was not representative of the prevalence of foreign packs used elsewhere in New Zealand. Excluding packs collected in Christchurch reduced the proportion of foreign packs to 3.9% and the estimate for revenue lost to $59.9 million.Since the previous pack collection study in 2008/9, there have been several hikes in tobacco taxation. With higher tax rates, every foreign pack represents a greater loss of potential revenue, so this partly explains the increase in estimated tax revenue lost in 2012/13. However, we also found a greater proportion of foreign packs in this study which also contributed to the higher estimate. This could result from the increase in tobacco tax causing a hike in cigarette prices, resulting in more New Zealand smokers purchasing cheaper cigarettes when travelling overseas.The commonest foreign pack was Australian. Although the percentage of foreign packs which were Australian slightly decreased from 2008/09 to 2012/13 (45.2% and 38.9% respectively), they still make up a significant proportion of foreign packs collected. Australia would be a highly unlikely place to bulk buy cigarettes for personal consumption or illicit sale in New Zealand, given that their prices are slightly higher than ours, so most of the Australian packs are likely to be bought duty-free at Australian airports.In conclusion, we conservatively estimate that the New Zealand Government loses between $59.9 and $89.1 million in tax revenue due to tobacco brought into New Zealand from overseas. Much of this is likely to have been bought duty-free in non-New Zealand airports.Additional revenue will be lost from the purchase of duty-free cigarettes by arriving passengers at New Zealand airports, so this figure is likely a significant underestimate of lost revenue. The availability of cheap tobacco products also undermines the impact of tax increases and the ability to achieve the Government's goal of a smokefree New Zealand by 2025.This revenue loss and undermining of efforts to achieve the Smokefree 2025 goal could largely be prevented by abolishing or greatly reducing tobacco allowances (e.g. to zero or one pack). This would be consistent with a recommendation for investigation into duty-free allowances in the report on the tobacco industry by the Māori Affairs Select Committee3 and recommendations in the Framework Convention On Tobacco Control4 (article 6.2) of which New Zealand is a signatory.Singapore and Australia are examples of countries which have recently abolished (Singapore) or greatly reduced (Australia) duty-free allowances, and whose example New Zealand should follow.Anna MarshallMedical StudentRichard EdwardsProfessor Richard.edwards@otago.ac.nzNick WilsonAssociate ProfessorGeorge ThomsonAssociate ProfessorJo PeaceResearch AssistantDepartment of Public Health, University of Otago, WellingtonAcknowledgements:We acknowledge the help of the many colleagues who helped with collected discarded packs for this study. References:1.Wilson N, Thomson G, Edwards R, Peace J. Estimating missed government tax revenue from foreign tobacco: survey of discarded cigarette packs. Tob Control. 2009;18:416–8.2.NZ Treasury. Regulatory Impact Statement: Increase in tobacco excise and equivalent duties. Wellington: The Treasury, 2012.3.New Zealand Parliament. Inquiry into the tobacco industry in Aotearoa and the consequences of tobacco use for Māori. Report of the Māori Affairs Select Committee. Wellington: New Zealand Parliament, 2010.4.WHO. WHO framework convention on tobacco control (WHO FCTC). Geneva: World Health Organization. Available at: http://www.who.int/tobacco/framework/en 2003.

Summary

Abstract

Aim

Method

Results

Conclusion

Author Information

Acknowledgements

Correspondence

Correspondence Email

Competing Interests

For the PDF of this article,
contact nzmj@nzma.org.nz

View Article PDF

Duty-free and smuggled tobacco are a public health problem because they lower the average price of tobacco. This undermines the impact of high tobacco product taxes in promoting smoking cessation and reducing smoking initiation. Wilson et al carried out a discarded pack collection study in New Zealand in 2008/09 to assess the proportion of discarded packs which were foreign (duty-free, foreign normal retail and smuggled) and to estimate the missed Government tax revenue.1 We performed a similar pack collection project between November 2012 and January 2013, allowing us to draw comparisons between the two studies.Methods—A total of 1776 packs were collected from 7 locations across New Zealand, with the majority collected in the Christchurch, Wellington and Nelson/Marlborough regions. ‘Foreign' status was determined by: A lack of the distinctive graphic health warnings required in New Zealand; and The lack of the use of Māori language as part of the warning. As in the 2008/09 study, we assumed that any foreign packs found represented a pack not bought in a New Zealand store, therefore representing lost Government revenue.We estimated lost Government revenue by multiplying the 2012 total tobacco tax take of $1242 million of excise/customs duty, plus estimated goods and services tax (GST) of $294 million (total $1536 million) by the proportion of foreign packs collected. We used the mid-range (55%) of the New Zealand's Treasury's estimate that tobacco excise is approximately 50%-60% of the total GST-inclusive retail price of tobacco to estimate GST revenue from tobacco products.2Results & Discussion—In 2012/13 there were 1673 (94.2%) ‘New Zealand' packs, and 103 (5.8%) foreign packs. In comparison in 2008/9, 42 out of 1310 NZ (3.2%) were foreign packs. Australian packs were the most common in both studies (45% of foreign packs in 2008/9 and 39% in 2012/13). The second commonest country of origin was China. The proportion of foreign packs from China in 2012/13 (26%) was greater than in 2008/9 (17%). The remainder of the packs came from a diverse range of countries, with between one and four packs each from 14 different countries. In 12 cases (12%) the origin of the pack could not be determined. There was no obvious clustering among the foreign packs collectively or by country of origin by manufacturer or brand, but it was noteworthy that of the Australian origin packs, over half (57%) were manufactured by Chinese tobacco companies.Over half (53%) of the foreign packs collected were from Christchurch (9.5% of packs collected here were foreign), and in particular from Riccarton Road where there is a high density of Asian cuisine restaurants. In this area, just over 29% of collected packs were foreign, with most (69%) being Chinese foreign packs or Chinese manufactured packs from Australia (13%).We estimated a loss of $89.1 million tobacco-related revenue per year for 2012. The equivalent estimate from the 2008/09 study was $36 million. Due to an underestimate in that study of the amount of tobacco-related GST revenue, which has since emerged, we now estimate this to be $38 million.Both these estimates of lost revenue are conservative as they do not include the excise duty and GST lost due to duty-free tobacco bought in New Zealand airports by arriving passengers. These packs will have standard New Zealand health warnings and hence are indistinguishable from other packs sold with duty paid in New Zealand.Some foreign packs may have been the current pack bought overseas and brought into the country by short-stay tourists and so less clearly represent lost revenue. However, this will be a very small contribution particularly as our main collection areas—Wellington and Christchurch regions (86% of packs collected)—are not top tourist areas.A possible bias is that the high proportion of foreign packs found around the Riccarton Road, or more generally in Christchurch, may have caused an overestimate of tax lost. This would occur if the pattern of packs collected was not representative of the prevalence of foreign packs used elsewhere in New Zealand. Excluding packs collected in Christchurch reduced the proportion of foreign packs to 3.9% and the estimate for revenue lost to $59.9 million.Since the previous pack collection study in 2008/9, there have been several hikes in tobacco taxation. With higher tax rates, every foreign pack represents a greater loss of potential revenue, so this partly explains the increase in estimated tax revenue lost in 2012/13. However, we also found a greater proportion of foreign packs in this study which also contributed to the higher estimate. This could result from the increase in tobacco tax causing a hike in cigarette prices, resulting in more New Zealand smokers purchasing cheaper cigarettes when travelling overseas.The commonest foreign pack was Australian. Although the percentage of foreign packs which were Australian slightly decreased from 2008/09 to 2012/13 (45.2% and 38.9% respectively), they still make up a significant proportion of foreign packs collected. Australia would be a highly unlikely place to bulk buy cigarettes for personal consumption or illicit sale in New Zealand, given that their prices are slightly higher than ours, so most of the Australian packs are likely to be bought duty-free at Australian airports.In conclusion, we conservatively estimate that the New Zealand Government loses between $59.9 and $89.1 million in tax revenue due to tobacco brought into New Zealand from overseas. Much of this is likely to have been bought duty-free in non-New Zealand airports.Additional revenue will be lost from the purchase of duty-free cigarettes by arriving passengers at New Zealand airports, so this figure is likely a significant underestimate of lost revenue. The availability of cheap tobacco products also undermines the impact of tax increases and the ability to achieve the Government's goal of a smokefree New Zealand by 2025.This revenue loss and undermining of efforts to achieve the Smokefree 2025 goal could largely be prevented by abolishing or greatly reducing tobacco allowances (e.g. to zero or one pack). This would be consistent with a recommendation for investigation into duty-free allowances in the report on the tobacco industry by the Māori Affairs Select Committee3 and recommendations in the Framework Convention On Tobacco Control4 (article 6.2) of which New Zealand is a signatory.Singapore and Australia are examples of countries which have recently abolished (Singapore) or greatly reduced (Australia) duty-free allowances, and whose example New Zealand should follow.Anna MarshallMedical StudentRichard EdwardsProfessor Richard.edwards@otago.ac.nzNick WilsonAssociate ProfessorGeorge ThomsonAssociate ProfessorJo PeaceResearch AssistantDepartment of Public Health, University of Otago, WellingtonAcknowledgements:We acknowledge the help of the many colleagues who helped with collected discarded packs for this study. References:1.Wilson N, Thomson G, Edwards R, Peace J. Estimating missed government tax revenue from foreign tobacco: survey of discarded cigarette packs. Tob Control. 2009;18:416–8.2.NZ Treasury. Regulatory Impact Statement: Increase in tobacco excise and equivalent duties. Wellington: The Treasury, 2012.3.New Zealand Parliament. Inquiry into the tobacco industry in Aotearoa and the consequences of tobacco use for Māori. Report of the Māori Affairs Select Committee. Wellington: New Zealand Parliament, 2010.4.WHO. WHO framework convention on tobacco control (WHO FCTC). Geneva: World Health Organization. Available at: http://www.who.int/tobacco/framework/en 2003.

Summary

Abstract

Aim

Method

Results

Conclusion

Author Information

Acknowledgements

Correspondence

Correspondence Email

Competing Interests

For the PDF of this article,
contact nzmj@nzma.org.nz

View Article PDF

Duty-free and smuggled tobacco are a public health problem because they lower the average price of tobacco. This undermines the impact of high tobacco product taxes in promoting smoking cessation and reducing smoking initiation. Wilson et al carried out a discarded pack collection study in New Zealand in 2008/09 to assess the proportion of discarded packs which were foreign (duty-free, foreign normal retail and smuggled) and to estimate the missed Government tax revenue.1 We performed a similar pack collection project between November 2012 and January 2013, allowing us to draw comparisons between the two studies.Methods—A total of 1776 packs were collected from 7 locations across New Zealand, with the majority collected in the Christchurch, Wellington and Nelson/Marlborough regions. ‘Foreign' status was determined by: A lack of the distinctive graphic health warnings required in New Zealand; and The lack of the use of Māori language as part of the warning. As in the 2008/09 study, we assumed that any foreign packs found represented a pack not bought in a New Zealand store, therefore representing lost Government revenue.We estimated lost Government revenue by multiplying the 2012 total tobacco tax take of $1242 million of excise/customs duty, plus estimated goods and services tax (GST) of $294 million (total $1536 million) by the proportion of foreign packs collected. We used the mid-range (55%) of the New Zealand's Treasury's estimate that tobacco excise is approximately 50%-60% of the total GST-inclusive retail price of tobacco to estimate GST revenue from tobacco products.2Results & Discussion—In 2012/13 there were 1673 (94.2%) ‘New Zealand' packs, and 103 (5.8%) foreign packs. In comparison in 2008/9, 42 out of 1310 NZ (3.2%) were foreign packs. Australian packs were the most common in both studies (45% of foreign packs in 2008/9 and 39% in 2012/13). The second commonest country of origin was China. The proportion of foreign packs from China in 2012/13 (26%) was greater than in 2008/9 (17%). The remainder of the packs came from a diverse range of countries, with between one and four packs each from 14 different countries. In 12 cases (12%) the origin of the pack could not be determined. There was no obvious clustering among the foreign packs collectively or by country of origin by manufacturer or brand, but it was noteworthy that of the Australian origin packs, over half (57%) were manufactured by Chinese tobacco companies.Over half (53%) of the foreign packs collected were from Christchurch (9.5% of packs collected here were foreign), and in particular from Riccarton Road where there is a high density of Asian cuisine restaurants. In this area, just over 29% of collected packs were foreign, with most (69%) being Chinese foreign packs or Chinese manufactured packs from Australia (13%).We estimated a loss of $89.1 million tobacco-related revenue per year for 2012. The equivalent estimate from the 2008/09 study was $36 million. Due to an underestimate in that study of the amount of tobacco-related GST revenue, which has since emerged, we now estimate this to be $38 million.Both these estimates of lost revenue are conservative as they do not include the excise duty and GST lost due to duty-free tobacco bought in New Zealand airports by arriving passengers. These packs will have standard New Zealand health warnings and hence are indistinguishable from other packs sold with duty paid in New Zealand.Some foreign packs may have been the current pack bought overseas and brought into the country by short-stay tourists and so less clearly represent lost revenue. However, this will be a very small contribution particularly as our main collection areas—Wellington and Christchurch regions (86% of packs collected)—are not top tourist areas.A possible bias is that the high proportion of foreign packs found around the Riccarton Road, or more generally in Christchurch, may have caused an overestimate of tax lost. This would occur if the pattern of packs collected was not representative of the prevalence of foreign packs used elsewhere in New Zealand. Excluding packs collected in Christchurch reduced the proportion of foreign packs to 3.9% and the estimate for revenue lost to $59.9 million.Since the previous pack collection study in 2008/9, there have been several hikes in tobacco taxation. With higher tax rates, every foreign pack represents a greater loss of potential revenue, so this partly explains the increase in estimated tax revenue lost in 2012/13. However, we also found a greater proportion of foreign packs in this study which also contributed to the higher estimate. This could result from the increase in tobacco tax causing a hike in cigarette prices, resulting in more New Zealand smokers purchasing cheaper cigarettes when travelling overseas.The commonest foreign pack was Australian. Although the percentage of foreign packs which were Australian slightly decreased from 2008/09 to 2012/13 (45.2% and 38.9% respectively), they still make up a significant proportion of foreign packs collected. Australia would be a highly unlikely place to bulk buy cigarettes for personal consumption or illicit sale in New Zealand, given that their prices are slightly higher than ours, so most of the Australian packs are likely to be bought duty-free at Australian airports.In conclusion, we conservatively estimate that the New Zealand Government loses between $59.9 and $89.1 million in tax revenue due to tobacco brought into New Zealand from overseas. Much of this is likely to have been bought duty-free in non-New Zealand airports.Additional revenue will be lost from the purchase of duty-free cigarettes by arriving passengers at New Zealand airports, so this figure is likely a significant underestimate of lost revenue. The availability of cheap tobacco products also undermines the impact of tax increases and the ability to achieve the Government's goal of a smokefree New Zealand by 2025.This revenue loss and undermining of efforts to achieve the Smokefree 2025 goal could largely be prevented by abolishing or greatly reducing tobacco allowances (e.g. to zero or one pack). This would be consistent with a recommendation for investigation into duty-free allowances in the report on the tobacco industry by the Māori Affairs Select Committee3 and recommendations in the Framework Convention On Tobacco Control4 (article 6.2) of which New Zealand is a signatory.Singapore and Australia are examples of countries which have recently abolished (Singapore) or greatly reduced (Australia) duty-free allowances, and whose example New Zealand should follow.Anna MarshallMedical StudentRichard EdwardsProfessor Richard.edwards@otago.ac.nzNick WilsonAssociate ProfessorGeorge ThomsonAssociate ProfessorJo PeaceResearch AssistantDepartment of Public Health, University of Otago, WellingtonAcknowledgements:We acknowledge the help of the many colleagues who helped with collected discarded packs for this study. References:1.Wilson N, Thomson G, Edwards R, Peace J. Estimating missed government tax revenue from foreign tobacco: survey of discarded cigarette packs. Tob Control. 2009;18:416–8.2.NZ Treasury. Regulatory Impact Statement: Increase in tobacco excise and equivalent duties. Wellington: The Treasury, 2012.3.New Zealand Parliament. Inquiry into the tobacco industry in Aotearoa and the consequences of tobacco use for Māori. Report of the Māori Affairs Select Committee. Wellington: New Zealand Parliament, 2010.4.WHO. WHO framework convention on tobacco control (WHO FCTC). Geneva: World Health Organization. Available at: http://www.who.int/tobacco/framework/en 2003.

Summary

Abstract

Aim

Method

Results

Conclusion

Author Information

Acknowledgements

Correspondence

Correspondence Email

Competing Interests

Contact diana@nzma.org.nz
for the PDF of this article

Subscriber Content

The full contents of this pages only available to subscribers.
Login, subscribe or email nzmj@nzma.org.nz to purchase this article.

LOGINSUBSCRIBE