One in four cigarettes smoked in Singapore last year was illegal, costing the Government millions of dollars in lost taxes and fuelling organised crime.
The Republic had the fourth-highest rate of illicit tobacco use in Asia, a regional study has shown.
Smokers here consumed 900 million contraband cigarettes, depriving the state of around $347 million in tax revenue.
Meanwhile, Interpol has warned that the illegal tobacco trade allows criminal gangs to flourish and could be used to fund terrorism.
The study of 11 countries and territories - released yesterday by research groups, the International Tax and Investment Centre and Oxford Economics - is believed to be the first of its kind in Asia.
It found Brunei had, by far, the most serious problem, with almost all tobacco "substituted with illegal products" after a massive 339 per cent tax increase in 2010 drove out legitimate firms.
Hong Kong had the second-highest proportion of illicit cigarettes - at 36 per cent - followed by Malaysia and Singapore.
The study - funded by tobacco firm Philip Morris International - revealed that 66 billion illegal cigarettes were sold across the region last year.
The problem cost the 11 governments a staggering US$3.4 billion (S$4.3 billion) in lost taxes.
Mr Michael Ellis, who heads Interpol's trafficking in illicit goods and counterfeiting unit, warned that the illegal trade "fuels organised crime and has been linked to funding activities for terrorist organisations".
He added: "This is a serious, growing problem driven by high profits, low risk, corruption and a lack of awareness about the consequences.
"It requires increased international, regional and national cooperation between public and private sectors to fight against it."
Mr Lee Boon Chong, the senior assistant director-general of Singapore Customs' intelligence and investigation division, raised concerns in Januaryabout the persistent demand for contraband tobacco products.
Last year, the authorities caught 6,248 buyers, up from 5,977 in 2011.
However, it is thought that improved enforcement has since brought about a slight reduction in the problem.
Philip Morris Singapore carried out a sample survey in May and June, which found 19.6 per cent of cigarettes were illicit.
"It is an encouraging decline, though the level is still a concern," said company spokesman Ann Hee Kyet.
"We believe we are seeing the effect of better enforcement and public education efforts, and hope resources will be provided for a sustained campaign to further reduce the size of illicit trade".