The report, funded by tobacco giant Philip Morris, was published by the UK-based research institute Oxford Economics and the International Tax and Investment Centre, a lobbying group.

It says Hong Kong lost HK$3.3 billion in potential tax revenue last year as a result of an estimated 1.8 billion illegal cigarettes smoked.

As part of the study, about 10,000 empty cigarette packets were collected across the city last year. Based on their markings, the packs were then classified as either legal domestic, duty-free, counterfeit or illegal imports.

Overall estimates of the number of illegal cigarettes smoked were then derived from the sample collected. Packets left by tourists were not counted, the study said.

The report says "steep" tobacco tax increases introduced in Hong Kong in 2009 and 2011 further widened price differences with neighbouring countries, providing incentives for criminal groups to make gains.

But Lisa Lau Man-man, chairwoman of the Council on Smoking and Health, disagreed.

"Contraband cigarettes have existed ever since taxes were placed on tobacco," she said.

Lau saw no causal link between a high tobacco tax and the proliferation of illegal cigarettes.

Brunei had low tobacco tax but topped all the countries in the report in terms of prevalence of illegal cigarettes.

In response to the report, a senior customs official said measures combating illegal cigarettes at the source were effective and the situation was improving.

From January to August this year, customs officials seized 59.5 million illegal cigarettes, a 38 per cent year-on-year increase, and made 28 arrests in anti-smuggling raids.

During the same period, tax revenue from tobacco rose to HK$3.48 billion from HK$3.2 billion brought in over the same period the previous year.