Despite the extra £25m of funding set aside in 2011 to help tackle the smuggling of legitimate tobacco brands, PRA chairman Brian Madderson says HMRC has yet to get a grip on the situation.
A report from the NAO stated that HMRC failed to meet any of its operational targets in 2012-13 and is unlikely to achieve its plan to prevent £1.4bn in revenue being lost to tobacco smuggling.
HMRC said it was committed to tackling tobacco smuggling and had invested an extra £25m from 2010 to 2015, but conceded that it lacks a good understanding of the volume of prosecutions and other sanctions needed to deter the trade in illicit tobacco.
HMRC estimates that 11% of all tobacco sales are not duty paid, meaning the illicit tobacco trade cost legitimate retailers £1.8bn in lost revenue in 2010-11.
Amyas Morse, head of the National Audit Office, said: "HMRC’s strategy for tackling tobacco smuggling sets out the right measures but, two years on, the department’s performance on the ground is disappointing."
Madderson said: "Not only does the illicit trade of tobacco significantly undermine the tax revenues in this country, it also represents a significant loss of sales to legitimate, honest retailers. A poll, carried out by Populus at the end of last year, shows just how many PRA retailers are currently impacted by the trade of illicit tobacco. Nearly two-thirds (62%) believe illicit trade in tobacco products, a product category they view as essential to their bottom line, has an impact on their business."