In a small town deep in a verdant valley, something doesn't quite add up.

The shops have been popping up along the main street in the past 12 months, nestled among the Victorian-era buildings, bakeries and pubs.

Locals have noticed them but few are willing to talk about them publicly.

"Most people don't want to put a target on their back," says Mat Evans, who runs a wholesaling business on the New South Wales South Coast.

When asked why, he hesitates and says it's because of the wave of firebombings just across the border.

Mr Evans is now the only wholesaler supplying cigarettes to service stations, stores and hotels across the region. The others have either bailed out or gone broke.

There's smoke but business isn't exactly firing: as more and more tobacconists have popped up, his profits have been drying up.

"There's businesses that used to order from me every week, some are now ordering every second or third week," Mr Evans says.

"There are two businesses that have completely stopped. It's not worth it, they can't compete with the illegal tobacco in town."

Under-the-counter cigarettes are being imported illegally in vast quantities and are being sold tax-free, at stores across the country, for half the price of their legitimate versions.

The maths is up in smoke

In Bega, a town of 5,000 famous for its cheese, cigarettes have long been sold at the major supermarkets, petrol stations and standalone tobacconist.

But in recent times, another three stores selling tobacco have set up shop, all within a few hundred metres of each other. Cignall Bega denies it is selling illegal cigarettes and the ABC sought comment from the others.

It is a trend across the state: the number of stores selling tobacco has increased from 14,500 to 19,500 in the space of four years. These figures only include the retailers that have registered and do not account for stores that have closed.

Unlike other states, stores do not need a licence to sell tobacco in NSW, they simply need to notify the Health Department, which is responsible for enforcing the laws around buying and selling tobacco.

Fines considered a cost of doing business

Shops caught selling under-the-counter cigarettes are slapped with an on-the-spot fine of between $1,100 and $5,500, which Cobargo Hotel owner David Allen reckons is so low, it is hardly a deterrent for dodgy operators.

"It is so lucrative, the margins are so big that [the fines] are seen as a cost of doing business," Mr Allen says.

"If people get breached, they lose the stock, they pay the fine and they continue on. To me, that says a lot."

It is almost like a game of whack-a-mole. When shops are breached, Bega Mayor Russell Fitzpatrick says they often shut down and reopen a few days later once they have restocked.

"We really need some regulation around it. We need to have licences," Mr Fitzpatrick says.