The department is responsible for the protection and collection of excise duties on four types of dutiable commodities stipulated in the Dutiable Commodities Ordinance. They are alcoholic liquor, tobacco, hydrocarbon oil and methyl alcohol.

2. In 2003, the excise duties collected amounted to $6 484 million, of which 53.5 per cent came from hydrocarbon oil, 34.2 per cent from tobacco, 12.2 per cent from alcoholic liquor and 0.1 per cent from methyl alcohol and other alcoholic products. It represented a decrease of 2.3 per cent over 2002. The drop was mainly attributed to the increased use of duty-exempt LPG as fuel by taxis and public light buses and the decrease in tobacco and motor fuel sales due to economic downturn. The percentage distribution of duty collection by commodities is shown below.

Illicit Fuel

5. The economic adversity in the first half of 2003 led to an increased demand for illicit fuels due to their lower prices. To tackle the problem of illicit fuels, the department had strengthened its enforcement actions and adopted a multi-pronged strategy. Apart from launching territory-wide operations to combat illicit fuel activities by pooling resources from different formations within the department and other law enforcement agencies, the department also fully used the intelligence-led strategy and adopted the tactic of tackling the fuel problem at source.

6. To contain the problem at its sources, the department launched two administrative schemes in June 2003, namely the "Marked Ultra-low Sulphur Diesel Verification Scheme on End-users" and the "Self-regulatory Scheme on the Bulk Sales of Duty-paid Diesel Oil". Under the Marked Ultra-low Sulphur Diesel Verification Scheme on End-users, oil companies will only sell marked ultra-low sulphur diesel to end-users whose status have been verified and approved by the Customs. Under the Self-regulatory Scheme on the Bulk Sales of Duty-paid Diesel Oil, oil companies will only supply duty paid light diesel in bulk to users whose status have been verified and confirmed in compliance with the related laws and regulations (e.g. The Dangerous Goods Ordinance and Building Ordinance).

7. Moreover, the department stepped up control measures at the boundary control points against the illegal importation of fuels and organised publicity campaigns to raise public awareness on illicit fuel and to encourage the public to report on illicit fuel activities.

8. With the multi-pronged strategy, the department effected 1 259 cases with a total seizure of 2.42 million litres of illicit fuels in 2003, representing an increase of 2.4 per cent in cases and 5.2 per cent in seizures over 2002. The department also smashed 897 illegal filling stations in 2003.

9. The multi-pronged strategy continued in 2004 with the detection of a number of successful cases. The most significant one was the mega joint operation with the Hong Kong Police Force in May 2004 against a marked oil detreating syndicate with triad background in Nai Wai. During the operation, 60 persons were arrested with the seizure of 76 339 litres of illicit fuels and 11 vehicles. After the operation, the supply of low sulphur detreated oil in the black market decreased drastically.

Illicit Cigarettes

11. To tackle the problem of illicit cigarettes, the department combated illicit cigarettes activities at import, distribution and street levels. In 2003, the department adopted the intelligence-led strategy to target the backstage masterminds of illicit cigarette syndicates. As a result, the illicit cigarette activities in Hong Kong were kept under control.

12. During 2003, the department effected a total of 43 525 cases with the seizure of 152.6 million sticks of cigarettes and the arrest of 4 540 persons. The total value of the seized illicit cigarettes was $229 million and the duty potential was more than $120 million. The cases effected and persons arrested were 92 per cent and 74 per cent respectively higher than those in 2002.

13. On the other hand, to prevent the abuse of duty-free concessions by travellers, Customs officers at control points have since February 2003 been using the computer workstations, which are linked to the computer system of the Immigration Department, and the identity card scanning device to verify whether an incoming passenger travelling on a Hong Kong identity card has spent 24 hours or longer outside Hong Kong for ascertaining the eligibility for duty-free concessions.

14. The verification procedures have proved to be very effective, which resulted in the detection of 12 361 cases of abuses of duty-free concessions, involving 2.78 million sticks of cigarettes in 2003 and 2004. Under the Compounding Scheme for penalizing travelers who have failed to declare excess quantity of dutiable goods, total fines of $2.7 million were collected in respect of 645 cases involving over 350 000 sticks of cigarettes.

15. In 2003, seizures of 4.78 million sticks of illicit cigarettes valued at $7.87 million were effected through ports and maritime enforcement. One case worth mentioning was that officers seized 2.37 million sticks of illicit cigarettes from a container imported by a river trading vessel from Huangpu, the Mainland. The illicit cigarettes were concealed behind several tiers of tissue papers. The shipment which was declared to contain "3 000 bags of tissue paper" was consigned to a local importer. The total seizure value and duty potential amounted to $3.56 million and $1.91 million respectively.

16. In 2004, the department continued adopting the intelligence-led strategy in its frontline investigation and enforcement actions, which yielded significant achievements. During 2004, the department effected 50 020 cases with the seizures of 167.65 million sticks of cigarettes and the arrest of 5 405 persons. The total value of the seized illicit cigarettes was $251.74 million and the duty potential was in excess of $134.79 million.

17. To enhance the strategies against transnational cigarette smuggling activities, the department hosted the First Meeting of WCO Contact Points for Anti-Cigarette Smuggling Operations in Asia Pacific Region in June 2004. An action plan, code-named "Project Crocodile", was drawn up by 16 participating Customs Administrations. The plan was implemented on 1 August 2004 aiming at fighting against transnational cigarette smuggling that used the circumlocutory paths or adopted the "merry-go-round" mode. Through Project Crocodile, the participating Customs Administrations join their efforts and step up intelligence exchange to monitor movements of all suspicious cigarette shipments crossing the borders of their countries.

18. Significant results were recorded during the initial stage of the action plan. For instance, in August 2004, through the monitoring system, Hong Kong Customs had alerted the Philippines Customs to a suspicious shipment of 28 containers of cigarettes and successfully stopped such shipment from diverting to the black market. The agent of the cigarettes had to re-import the shipment back to Hong Kong through legitimate ways.