Illegal tobacco sales have led to higher insurance premiums and declining profitability for lawful businesses, small business operators have told a taskforce.

The Coalition Taskforce into Illegal Tobacco proposes reducing the tobacco excise rate at least 80% to regain control of the market.

It has also called for establishment of a highly regulated and licensed framework for businesses to legally sell vapes to adults, and for a refreshed education campaign detailing the health impacts of illegal vaping and smoking.

Retailers told the taskforce lawful tobacco sales may become commercially unviable, with one saying her yearly income from the product would not reach the $800 tobacco licensing fee in Victoria.

Illegal tobacco has moved beyond revenue leakage to be a public health, community safety and organised crime problem, with retailers concerned about risks to staff, the taskforce says.

Most pharmacies are reluctant to stock vapes for fear of organised crime attacks.

Although the price of legal cigarettes is $50-$60 a packet, “when up to 80% of the market is paying organised crime prices of $15-$20 per packet, that is the real price of cigarettes in Australia today,” taskforce co-chair Senator Richard Colbeck said.

Organised crime has effectively wiped out the strategy of increasing prices to reduce smoking rates, he says.