Government to close tobacco tax loophole

The Government will close a loophole that allowed some people to import cigarettes and loose leaf tobacco for manufacturing cigarettes and ‘roll your owns’ for sale on the black market without excise tax being paid, says Minister of Customs Jenny Salesa. The legislation, which doesn’t affect duty free allowances for travelers, was passed by Parliament this morning.

“Customs has seen a rising tide of illicit tobacco through international mail and freight in recent years, often with organised crime involved. While most New Zealanders who smoke are paying full excise on the cigarettes they buy at the shop, the minority who can get their hands on smuggled and illegal tobacco products aren’t paying that tax. Whatever you think of tobacco excise, it’s simply not fair that some people get to dodge paying it.” said Jenny Salesa.

Under the changes, tobacco products will become ‘prohibited imports’. Only those who have an import permit issued by Customs (such as legitimate retailers and tobacco manufacturers) will be able to import tobacco products.

“This change is about closing down international mail as a way for smugglers to import tobacco leaf and cigarettes into New Zealand to avoid taxes. At the moment, Customs have to prove the importation is for the purpose of evading excise tax, before the tobacco can be seized or a prosecution is commenced. Now Customs will be able to take quicker action if the importer doesn’t have a permit.

“Between the current loophole and smugglers’ crafty attempts to conceal these products, too much tobacco has made its way into New Zealand tax-free. In recent years, Customs has caught smugglers hiding millions of illegal cigarettes inside furniture and boxes of foodstuffs.”

“Tax-free smokes for some isn’t fair on the Kiwis who have to pay full price at the shop.” said Jenny Salesa.

Interceptions of smuggled cigarettes at the border have increased by 352 percent between 2015 and the end of August 2019. Interceptions in 2018 were 53 percent higher than in 2017.

In the last twelve months, the amount of tobacco products seized by Customs represented $10.8 million of excise tax foregone. Customs estimates that a further five million dollars of excise and GST was foregone in 2019 when five tonnes of tobacco leaf was imported into New Zealand but didn’t have tax paid on it due to the current loophole.

From 1 July 2020, people and businesses will need to have a permit to import tobacco products from the New Zealand Customs Service. The changes do not affect travelers’ duty-free allowances at airports.