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IBISWorld Business Environment Profiles

Excise on tobacco products

June 2016

Estimated value in 2015-16: $677.05 per kilogram

Compound growth 2011-2016: 10.1%

Forecast value in 2020-21: $1,412.83 per kilogram

Compound growth 2016-2021: 15.8%

This report analyses the excise tax on tobacco products. This includes excise taxes and customs duties on roll-your-own tobacco. Individual cigarettes
that contain less than 0.8 grams of tobacco are taxed at a flat rate that is equal to the roll-your-own tax for a 0.8-gram cigarette. This means that
smaller cigarettes are taxed more heavily. The tax on tobacco is set at a dollar value rather than a percentage of the sale price. The data for this
report is sourced from Tobacco in Australia and is measured in current dollars per kilogram of tobacco.
Current Performance

IBISWorld forecasts the excise on tobacco products to increase by 16.1% in 2015-16, to total $677.05 per kilogram. According to the Australian
Taxation Office (ATO), excise rates for tobacco products increased by 12.5% in each of December 2013, September 2014 and September 2015. The
12.5% increase that became effective in September 2015 will therefore contribute to a spike in the excise tax in 2015-16.

Up until December 2013, the excise tax on tobacco products was indexed to the consumer price index, which prevented the tax from falling in real
terms due to inflation. The index was readjusted twice a year, in February and December, to match the increase in the consumer price index over the
previous six months. However, in March 2014, the excise on tobacco was changed from a biannual indexation based on the consumer price index to a
biannual indexation based on average weekly ordinary time earnings (AWOTE). This change aimed to prevent the tax from being diminished by
increases in purchasing power caused by rising real income.
In addition to ensuring that excise taxes do not fall in real terms due to inflation, state and federal governments increase tobacco taxes to achieve
other goals. These goals include reducing smoking rates, weakening the burden on the health system and reaching revenue targets. In April 2010, the
excise increased by 25% in addition to the indexation, contributing to a spike in both 2009-10 and 2010-11. There is evidence to suggest that this
increase led to a reduction in the number of smokers and the amount of tobacco that was consumed.
Over the past five years, the excise on tobacco has grown strongly, highlighted by consistent double-digit growth over the three years through 201516. Three consecutive 12.5% increases between December 2013 and September 2015 have underpinned this growth. Overall, IBISWorld forecasts
the excise on tobacco products to grow at a compound annual rate of 10.1% over the five years through 2015-16.

IBISWorld forecasts the excise on tobacco products to total $785.57 per kilogram in 2016-17, which represents a 16.0% increase over the previous
year. The ATO has stated that the last confirmed scheduled increase will occur in September 2016, contributing to strong excise growth during 201617.
Over the next five years, the excise on tobacco products is expected to continue rising strongly. In the lead up to the 2016 Federal Election, the
Opposition stated that it will introduce four annual 12.5% excise increases starting in September 2017 and ending in September 2020, while the
excise will remain indexed to AWOTE.

In contrast, the Federal Government initially claimed that it would not increase the tobacco excise tax if it is elected in the July election. However, in
May 2016, Treasurer Scott Morrison announced that the Turnbull Government will introduce the same annual tobacco excise increases that have
already been proposed by the Opposition. As a result, tobacco excise growth is expected to exceed 15% each year up until 2020-21. Overall,
IBISWorld forecasts the excise on tobacco products to grow at a compound annual rate of 15.8% over the five years through 2020-21, to total
$1,412.83 per kilogram.

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