Retailers Against Smuggling questioned more than 1,000 shopkeepers about the effect cheap, smuggled cigarettes had on their tobacco sales and found 19% of corner shop owners had considered closing because of the problem. Some 44% of retailers said they were aware of counterfeit tobacco being sold in their area.
A spokesman for Retailers Against Smuggling, which represents 16,000 independent retailers across the UK, urged the government to tackle the issue.
"These findings will shock many people but not many independent retailers," he said. "We have been aware that the government's high tobacco tax policy has been affecting our sales for quite some time now.
"How can we compete with the smugglers when they can offer cigarettes for half the price we can?
"What the government needs to grasp is that the only reason smugglers target the UK is because the high tax levels in this country provide them with the greatest potential profit in the EU."
Blackburn shopkeeper Solly Khonat said: "Retailers like me are a vital part of our local communities.
"We need the government to work with us rather than against us so that we can continue to provide the services that we do for our customers." In 2003/04 the government estimated the treasury lost £2.7bn in cigarette taxes to smugglers.
A spokesman for Revenue and Customs said: "We are well aware of the impact tobacco smuggling can have on the community, but cutting tobacco tax levels would do nothing to solve the problem.
"The vast majority of illegal and counterfeit cigarettes sold in this country were smuggled in from countries outside the EU with no tax paid at all."
Meanwhile, the Scottish Grocers' Federation is conducting research among its members in a bid to establish the effect of the ban on smoking in public places on its members.
Questionnaires went out this week, and the responses will inform SGF's future work related to tobacco.