Stiffer punishment including caning to combat smuggling activities

Analysts estimate that the country lost about RM8b in taxes due the widespread smuggling activities, largely from cigarettes and liquors

by RAHIMI YUNUS / pic by BERNAMA

Malaysia lost billions in tax revenue every year due to smuggled products, including cigarettes. Many see the leniency of the punishment as the reason behind the widespread smuggling activities.

Analysts estimate that the country lost about RM8 billion in taxes due the widespread smuggling activities, largely from cigarettes and liquors. Both items are heavily taxed by the government.

Industry experts estimate that in 2016 alone the country was deprived of about RM4.12 billion in tax revenue due to the widespread sales and smuggling of illegal cigarettes. It is estimated that Malaysians smoke 18 billion sticks of cigarettes in 2016, but 57.1% or 10.29 billion sticks are illegally brought into the country and do not contribute any revenue to the government.

The Oxford Economics report released in July this year quoted the estimated tax loss due to illicit consumption was RM4.7 billion a year, higher than the RM4.12 billion estimates of 2016.

This month, the Royal Malaysian Customs Department foiled the attempt to smuggle 6.4 million cigarettes with unpaid tax of RM4.2 million after stopping a container near the North Port.

In September, the Customs seized millions of ringgit worth of beer, liquor and cigarettes.

The items were seized from a barge which had berthed at a private jetty in Sibu, Sarawak, one of the state’s biggest seizure of contrabands.

The barge with the contraband had sailed from Ho Chi Minh City, Vietnam, before landing at the private jetty. Total payable tax from the seizure was more than RM15 million.

In the same month, the same authority foiled an attempt to smuggle in cigarettes and alcohol worth RM10 million with unpaid duty in Port Klang including 10.5 million cigarette sticks worth RM8 million with unpaid duty and 1.8 million sticks of the brand DinX cigarette.

These are successful cases of foiled smuggling attempts. But many other similar attempts had escaped the authorities’ dragnet and hit the market.

Combat Illegal Activities

In the recent Budget 2019 presentation, Finance Minister Lim Guan Eng had reaffirmed his commitment to combat the menace, including to beef up the Customs enforcement.

The intensifying enforcement by the Customs to address the rising smuggling of cigarettes and fake tax stamps on ciggie boxes would allow the government to recover at least RM1 billion in taxes.

Lim had also highlighted the problems of cheaper contraband alternatives and illicit products packaged with fake tax stamps.

“The government hopes to recover at least RM1 billion in tax losses as a result of clamping down on smuggling and fraudulent activities,” Lim had said.

The announcement had been well received by the general public. It was the first time in many years that the government had realised the impact of smuggling and illicit trade towards the country’s revenue and had announced policy action to address the matter.

Those caught for smuggling are investigated under Section 135(1)(a) of the Customs Act 1967 for allegedly importing goods without the import permit and Section 135(1)(d) of the same Act for possession of goods not approved by the Customs.

If convicted, offenders are liable to a fine of between 10 and 20 times of the value of goods seized, a jail term of three years, or both.

For the second and subsequent offence, the offenders are liable to a fine of between 20 and 40 times the value of the goods seized, five years jail, or both.

Many stakeholders have proposed a deterrent punishment to combat the smuggling menace.

Some believe the fine of between 10 and 20 times of the value of goods seized, a jail term of three years, or both do not deter the activities.

The Customs suggested a stiffer punishment. It has proposed to the government to amend the Customs Act 1967 and impose caning and a minimum fine of RM100,000 for those found guilty of the crime.

Customs DG Datuk Seri Subromaniam Tholasy said the agency will also step up enforcement against cigarette smuggling, including on illicit products that are packaged with fake Customs duty labels.

Institute for Democracy and Economic Affairs (IDEAS) in its recent research paper had also endorsed for stiffer and deterrent punishment.

Ali says the research think tank recommends that penalties against illicit traders be raised to RM100,000. (pic by: Ismail Che Rus)

IDEAS CEO Ali Salman said the research think tank recommends that penalties against illicit traders be raised to RM100,000.

“The current levels of penalties do not act as a sufficient deterrent and need to be increased in line with the proposals from the Customs,” Ali said.

There are parties who want the government to impose caning on smugglers, largely as the proceeds from smuggling had gone into organised crimes, the underworld, terrorism financing and other vices.

Others eyed stiffer punishment including canings as the scope of illicit trades had expanded to include humans, wildlife and exotic creatures.

Fake Tax Stamps

Centre for Public Policy Studies (CPPS) said the cigarette smuggling and flourishing of the black market of the contraband had been boosted with the ease of getting fake tax stamps.

These stamps are said to be easily accessible or bought in the market that allows smugglers to put the stamp on contraband and disguise the products as legitimate and duty-paid cigarettes.

These cigarettes with the fake tax stamps are either sold at the current market prices for very hefty profits or sold at a lower price to trick customers of their legitimacy.

CPPS senior policy analyst Jarren Tam said surveys showed that there are cases where officers illicitly sold the original tax stamps at a lower price.

The fake tax stamps had become a critical component of the smuggling ecosystem.

A local Malay newspaper had reported that the government lost RM440 million due to fake tax stamps.

In the report, it said there are parties that bought a small amount of the original tax stamps from the Customs before reprinting millions of the fake stamps.

These fake tax stamps are then pasted on every cigarette box before they are sold to the public to resemble a legitimate and duty-paid product.

Most times, these cigarettes with fake tax stamps are sold below the minimum price of RM10.

It is believed the cigarettes could land in the hands of nearly 70,000 retailers across the country, said the newspaper.

The fake tax stamps issue was only reported after its introduction in 2016 and the approximately one billion sticks of such product had hit the market with a tax value of RM440 million.

The report said local cigarette manufacturers are the main culprits of the fake tax stamps.

A concerted effort is required to end the menace. The measures should include increasing enforcement, stiffer punishment such as higher fines and caning, addressing the fake tax stamps issue including revamping the system, and punishing parties that sell such stamps.

All these efforts will definitely give the government more than RM1 billion in revenue.