KUALA LUMPUR – Malaysia leads the world in the sale of illicit cigarettes, said a tobacco industry leader, no thanks to ill-conceived tax policies and lax enforcement.
Japan Tobacco International Malaysia managing director Cormac O’Rourke said 12 billion sticks of duty-unpaid cigarettes are sold in the country each year, translating into an annual revenue loss of RM5 billion for the government, or roughly 10% of the hit taken by the European Union in the same period.
“This is why Malaysia is a very interesting case study for us to understand what could actually go wrong here, and what are the causes and facts to consider,” he told an online panel titled “Online and on Our Streets: Where Next in the Fight Against the Illegal Trade of Tobacco Products?”, hosted by the Global Tobacco & Nicotine Forum, on Tuesday.
The sale of illicit cigarettes was already significant at 35% of total cigarette sales prior to 2015. The figure soared to 65% after the government increased the tax on the product by a whopping 40% that year.
“What’s interesting in Malaysia is that we do not have a counterfeiting problem. In Malaysia, the bulk of illegal cigarettes is actually contraband,” said O’Rourke.
“It’s obviously very corrosive for the country, particularly during this time, when all countries are looking for sources of revenue.”
The RM5 billion in lost revenue could have been used to spur the national economy, he said, adding that the excise tax amount, which is absorbed by the consumer, has created a “huge disparity” in prices between illicit and legal cigarettes.
‘Least affordable in the world’
A pack of illegal cigarettes sells for between RM3 and RM8, much cheaper than the RM17.40 price tag for a pack of duty-paid premium cigarettes.
“Taxation done in isolation and not considering a neighbouring state is also an issue,” said O’Rourke, referencing the fact that most of the illicit cigarettes sold in Malaysia are from countries that impose lower duties.
The question of affordability must be taken into account as well, he said, adding that Putrajaya’s move to raise the tax in 2015 made legal cigarettes in Malaysia “the least affordable in the world”.
“As a consequence, people could no longer afford legal cigarettes, and decided to go for the illegal ones.”
Despite a moratorium on tax increases since and improved affordability year-on-year, tackling the illicit cigarette trade is no easy task as syndicates have a tight grip on the market, he said.
“The lesson here is, you should not have drastic tax increases in the first place, considering the country’s affordability levels.” – The Vibes, September 24, 2020
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