Inside Sydney and Melbourne’s “Afghan Supermarkets” illegal tobacco hotspots that are costing the economy millions

The Melbourne milk bar turned tobacco dealer, the Canberra pub where customers ask for “whites”, the Afghan supermarket peddling one kilogram bags of chop-chop and a packet of Marlboro 20s for $13.

There are Spoonbills and Manchesters, cigarettes you have never heard of, and loose-leaf from the Victorian Riverina for the first time in a decade.

Investigative reporter Nick McKenzie rides along as Australian Border Force officers conduct illegal tobacco raids across Melbourne.

It is the illicit trade in a legal drug that is becoming as lucrative as cocaine, at a fraction of the risk, and it is costing the economy millions of dollars in missed tax revenue, according to the federal government.

A list of tip offs shared with the Australian Border Force, NSW, Victorian and Federal Police has revealed more than 60 stores allegedly trading in illegal tobacco around the western suburbs of Sydney, and the east-west ring of Melbourne, with other centres in Griffith, Ballarat and Bendigo.

Number five on the list got hit this week. A Sydney duo at Bondi Junction’s Free Choice Tobacconist was stung with a $72,000 fine by the South Eastern Sydney Local Health District for selling illegally imported cigarettes in packages without health warnings.

The reprimand is a fraction of the potential profits to be made from importing the cancer crop, now coming into the country weekly by the tonne, and finding its way from Clayton in Melbourne’s east to Auburn in Sydney’s west.

A spokesman for the Australian Border Force said since 2015 it has seized 400 tonnes of illicit tobacco, amounting to $294 million in lost taxes.

A report from KPMG commissioned by big tobacco claims the total is closer to $1.6 billion, but the Cancer Council strongly disputes this figure.

They claim it is part of a big tobacco campaign to overestimate the influence of illegal operators to stop their profits from sliding further.

“The latest survey released this week by the Australian Institute of Health and Welfare shows that the proportion of Australians who use illegal tobacco is tiny,” said Cancer Council CEO Sanchia Aranda.

“The best way for us to reduce the use of any tobacco products and improve Australians’ health is to continue to encourage more people to quit smoking.”

An average packet of Marlboro 20s now costs $27; illegally it is half that, leaving a $10 profit on the $3 packet bought overseas.

In Fairfield in Sydney’s west, a store owner buys loose-leaf tobacco in bulk and spends his days hand rolling cigarettes into packets of 100 worth $30.

In Melbourne, a tailor sells blue and red cartons for $50 a pop, a $20 mark up on the shop down the road where you speak to “Stan”.

In Bendigo, a pub opens its doors between 1-3pm for customers wanting a “box of blue”, while in Melton, west of Melbourne, a shopkeeper spruiks discount coupons on the street.

The price of tobacco has surged by 343 per cent since 1996, with the steepest rise since 2013 when the Rudd-Gillard governments announced an annual increase of 12.5 per cent in tobacco taxes, plunging Australian tobacco consumption to its lowest level in history.

For organised crime, the tax gap has become a tantalising low-risk play.

A dealer bringing in 15 kilograms of ice faces years in jail. On Wednesday, a 38-year-old man from northern NSW was fined $55,000 for smuggling 20,000 cigarettes.

“Illicit tobacco is an increasingly attractive market to organised criminal syndicates due to the lucrative profits that can be made in evaded tax,” Border Force acting superintendent Robert Ansell said.

The expansion of the industry has also seen illegal Australian tobacco farms pop up for the first time in a decade, their “chop-chop” or loose leaf tobacco filling the space of gift store drawers in places as far flung as Werribee and Griffith.

In March, six hectares of crop worth $5.8 million in taxes was seized near Kerang on the Victorian-NSW border. It followed a record $15.4 million haul worth 30 million cigarettes seized in the same area a year earlier.

While the Australian Tax Office seized the Riverina crop because of its tax value, it no longer has jurisdiction once the product enters stores where local police and health authorities take control.

At the country’s entry points, the Border Force is in charge, when organised crime gets involved, Australian Federal Police take over.

In August, they charged the son of Kings Cross identity John Ibrahim, Daniel Taylor, for transferring $2.25 million to facilitate the importation of large quantities of tobacco.

The myriad agencies targeting illegal tobacco have some in the industry concerned law enforcement is creating holes for criminals to slip through.

A much hyped Border Force press conference in 2015 turned to farce when a 71-tonne seizure promoted by Immigration Minister Peter Dutton resulted in no convictions, despite the record drug seizure had taken place four months earlier.

“We would like to see a national anti-illicit tobacco strategy implemented which then sits with one agency,” said Imperial Tobacco spokeswoman Michelle Park.

A parliamentary inquiry into illicit tobacco that began in 2015 still has yet to make any recommendations, while the federal government’s Black Economy Task Force has called for a “blitz” on the industry, warning the economic cost of the tax gap is growing as it prepares to release its final report in October.

A spokesman for the Australian Tax Office said the ATO was working with the Department of Immigration and Border Protection on developing a final estimate of tax losses.

“The illicit tobacco tax gap will be released when we are satisfied we have an estimate that is both credible and reliable,” he said.