The NSW Government has approved tougher laws for businesses selling illicit tobacco following the new licensing scheme, which aims to promote a safer community.

Last week the NSW Legislative council voted to increase the maximum penalties for illegal tobacco sales, those caught can face a maximum of 7 years imprisonment and $1.5 million dollars in fines.

The vote also agreed to close down businesses caught selling the illegal substances.

The sales of illicit cigarettes have spread to Western NSW, with raids in Coonamble and Coonabarabran earlier this year exposing the illegal trade.

Carlo's IGA manager Nicola Harland says the Gilgandra stores' tobacco sales have suffered hugely.

"We've lost $50-thousand a week in sales," she said.

"Carlo owns about 12 stores and I think just about all of them are affected by illegal tobacconists".

 Warren IGA Manager Francine Cole said their store has been effected too.

"It has completely slashed our sales; us selling it legally," she said.

"We used to buy like $60,000 worth of cigarettes a week now we buy like $5000 worth."

But Francine is hopeful the new penalties will be effective in stopping the illegal sales.

"As long as there's someone policing it," she said.

She said the tax on legal tobacco products drives consumers to illegal trade.

"The government put themselves in that position as well because, the prices have gone up and up and up, and people can't afford it," the Warren IGA manager said.

"If they reduce the tax on it, then people would go and buy the legal ones."

The cheap price tags on the illegal products appeal to Australians on a budget, and the Australian Taxation Office taxes $1.49 per cigarette, making legal tobacco prices hefty.

The Tobacco In Australia 2024 report said the tobacco excise taxes are set highly due to multiple factors, including the evident decline in overall tobacco use, and the improvement of population health.

According to the Australian Bureau of Statistics, smoking takes the lives of over twenty-thousand Australians each year.

Previously the maximum penalty for first offenders was $11 000, and repeating offenders $220 000.

Minister for Health Ryan Park says the new laws are just one piece of the puzzle.

"Soon, those who peddle illegal tobacco in our communities will face the prospect of fines of up to $1.5 million; prison terms of up to 7 years; and closure of their businesses – some of the toughest laws in the country," he said.

"These laws will complement the commencement of our tobacco licensing scheme which will make it easier to identify and clean out bad actors.

"And they will be supported by NSW Health’s newly established Centre for Regulation and Enforcement.

"We are determined to disrupt the business model of large-scale criminals who profit from addiction, tax evasion, and putting young people at risk.

"These laws aim to protect public health as well as protect small businesses who do the right thing."