Up in smoke: illicit cigarette trade cost Hong Kong government HK$2.5b in lost tax revenues last year, study reveals

One in every four cigarettes smoked in Hong Kong last year was illicit, costing the government HK$2.5 billion lost in tax revenues, according to study released on Wednesday.

The “Asia-16” study, conducted by UK-based Oxford Economics and funded by tobacco giant Philip Morris, shows 1.3 billion, or 28 per cent, of cigarettes consumed were illicit. Despite a 5.6 per cent point drop compared to 2013, Hong Kong ranks fourth in illicit cigarette trading out of 16 Asia-Pacific markets studied, behind Brunei, Macau, and Malaysia.

Adrian Cooper, chief executive officer of Oxford Economics, said the city had a “significant problem” with illicit cigarettes. “[It’s] driven in part by the substantial retail price gaps with neighbouring countries that were exacerbated by tax rises in 2009 and 2011,” he said, adding that the price difference created a huge incentive for cross-border trade of cigarettes.

According to the report, the price of the most-sold brand in Hong Kong last year was US$7.1 per pack of 20, significantly higher than US$1.1 in China, US$3.8 in Macau, and US$3.0 in Taiwan.

In 2014, excise taxes were raised by 11.7 per cent, which brought up the retail price of the most-sold brand by 10 per cent.

Concern groups called for stronger action against organised smuggling gangs and syndicates.