Hong Hong people consumed 5.4 billion cigarettes in 2013, of which more than a third were smuggled, Apple Daily reported on Tuesday.
According to a report on the Asian cigarette market by Oxford Economics, which was commissioned by tobacco giant Philip Morris, smuggled cigarettes accounted for 33.6 percent of the total consumption in Hong Kong last year, trailing behind Brunei and Malaysia.
The Hong Kong government lost HK$3.2 billion (US$412.9 million) in duties as a result of rampant cigarette smuggling activities.
Last year the customs bureau handled 16,600 cigarette smuggling cases and confiscated smuggled cigarettes worth HK$220 million, up 15.6 percent from the previous year.
Daniel Witt, president of the International Tax and Investment Center, said the heavy tobacco tax partly contributed to the rise in smuggling activities as Hong Kong smokers turned to cheaper alternatives.
Hong Kong raised the tobacco tax by 50 percent in 2009 and another 41.5 percent in 2011 to encourage people to quit smoking. In February, the government announced a further 11.8 percent hike.
Witt said the tax hikes were so sharp that the market could not absorb it immediately, leaving room for smuggling.
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