Smuggling of hand-rolling tobacco is out of control and costing the taxpayer hundreds of millions of pounds, MPs have warned.
James Plaskitt (Lab Warwick & Leamington) said: "The amount of revenue being lost is unacceptable."
The MP is a member of the Treasury Select Committee, which called for a study into whether cutting tax on tobacco would help reduce smuggling.
Duty is never paid on seven out of ten packets of rolling tobacco smoked in this country, the committee warned.
The taxpayer is losing £750 million a year as a result, and the problem is getting worse rather than better.
Cigarette smuggling is costing the nation £1.9 billion a year, but the figure is falling.
However, the problem of counterfeit cigarettes is growing, the committee said.
These are often made in China and have higher levels of tar and nicotine than the brands they are designed to look like.
The committee also warned that no exact figures were available for the amount of spirits smuggled into the country each year.
The findings were published by the committee, following a detailed investigation.
Mr Plaskitt said: "The scale of fraud is still very high.
"Customs and Excise have managed to make some progress over the last two years in getting the level down.
"There are reasons to be optimistic, but the overall level of fraud is still unacceptably high.
"A lot of money is being lost, which is unacceptable and unfair to everyone who buys legitimate products and pays their taxes.
"Excise duty fraud is sometimes connected to organised crime, which damages the whole of society."
The estimated revenue on rolling tobacco lost through smuggling and fraud had increased by 19 per cent over five years, up from £630 million to £750 million, the committee said. The MPs said they would welcome a study by Customs and Excise on how cutting taxes on nicotine might reduce smuggling.