A Labor-controlled inquiry estimated Victoria's tobacco market was worth $6 billion in 2023, as its report was tabled in state parliament on Thursday.
Up to 40 per cent of that could be made up of illegal cigarettes, vapes and other tobacco products based on varying estimates.
Federal tax excise is being blamed for the burgeoning tobacco black market. (HANDOUT/NSW POLICE)
The Public Accounts and Estimates Committee inquiry found the higher tax excise had made legal tobacco "prohibitively expensive", coupled with inflation and cost‑of‑living pressures.
It called for a fixed percentage of revenue from the Commonwealth's tobacco excise to be given to state and territory governments to support increased regulatory and enforcement activities.
In May 2023, Federal Health Minister Mark Butler announced the tax on tobacco would increase five per cent each year for three years from September 1, 2023.
It's set to jump by 6.9 per cent on September 1, 2024, with the rate indexed to average weekly ordinary-time earnings.
Branding it a move to deter people from smoking was "pure insanity" because it would incentivise smokers and vapers to buy from the black market, Australian Association of Convenience Stores chief executive Theo Foukkare said.
"(Victoria) is burning as illicit tobacco turf wars rage on and now we have the federal government quite literally adding fuel to the fire because of this short-sighted tax grab," he said.
Tobacco stores have been heavily targeted by arsonists as part of a turf war. (James Ross/AAP PHOTOS)
Several drivers have contributed to the extensive black market in illicit vapes and cigarettes, the inquiry found.
They include the price differential between legal and illicit cigarettes, the absence of a licensing scheme, lack of enforcement activity and minor penalties for illegal activity.
"The 'low‑risk, high‑reward' nature of these commodities have attracted overseas crime syndicates to the lucrative market," the report said.
Victoria will become the only Australian state or territory without a tobacco licensing scheme from Sunday when Queensland's begins operating.
In March, Premier Jacinta Allan announced Victoria would establish a scheme for retailers and wholesale tobacco suppliers following a spate of store firebombings linked to the turf wars.
As well as calling for the scheme to cover all nicotine products, the inquiry recommended it be regulated by an independent, standalone agency within the Department of Justice and Community Safety.
Police and federal agencies will monitor compliance and enforcement as part of a Victorian scheme. (David Crosling/AAP PHOTOS)
It should work with Victoria Police and federal agencies to monitor compliance and enforcement.
Ms Allan said on Thursday her government was on track to introduce legislation to parliament before the end of 2024 to establish the scheme.
Opposition Leader John Pesutto questioned why it was taking so long, but vowed to work with the government.
The Victorian Greens were similarly scornful of the hold up, saying the Labor government has had years to prepare.
"Victoria is the only state where your cafe or your hairdresser could start selling cigarettes, and right now the only enforcement seems to be firebombing by gangsters," party spokesman Tim Read said.
There have been 97 arson attacks on Victorian businesses selling tobacco since March 2023, police say.
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