Vapes, illegal ciggies costing RM6b in potential tax losses

An industry expert proposes that the govt strengthens the enforcement of the existing laws which regulate all products containing nicotine


VAPES and illicit cigarettes could cost the government about RM6 billion in lost taxes as the country’s porous borders and high tobacco product prices become a boon to smuggling activities in the vaping sector.

A recent study by Japan Tobacco International Bhd (JTI Malaysia) showed that vaping has more than doubled between 2018 and 2019 as users shift to the electric-based devices as a cheaper alternative.

Vaping is not regulated and is not officially illegal, but distribution of products with nicotine content is against the law.

JTI Malaysia MD Cormac O’Rourke said vapes and contraband cigarettes account for about 70% of the total consumption.

“Illegal vape, following the trends of illegal cigarette trade, is growing alarmingly fast. The government stands to lose close to RM6 billion annually in tax revenues, not to mention the reputational damage to Malaysia,” he said in a media briefing on “Illegal Cigarette Trade and Vaping: A National

Epidemic” in Kuala Lumpur yesterday. Vaping, the use of a device that heats liquid flavours, was estimated to be worth about RM2 billion in 2015.

The government is still formulating the best mechanism to regulate vaping. Health Minister Datuk Seri Dr Dzulkefly Ahmad said a new law on vapes, shisha and e-cigarettes is being formulated. E-ciggie is also gaining popularity with only of brand approved for distribution.

E-ciggie is a huge business in Japan and South Korea, and is accepted as an alternative to traditional ciggies.

O’Rourke said the delays only prolong the uncertainties of the vaping industry while the legal tobacco industry continues to be impacted.

He proposed that the government strengthens the enforcement of the existing laws — the Poisons Act 1952 and Sale of Drugs Act 1952 — which regulate all products containing nicotine, including vapes and e-cigarettes.

“Flip-flopping the issue and reluctance to act by the succeeding government have contributed to the expansion of illegal vaping stores, operating openly and without fear of the authorities,” O’Rourke said.

O’Rourke said it would be an uneven playing field for tobacco traders as illegal cigarettes and vapes, controlling 60% and 10% of the total market share respectively, are reaping most of the benefits.

“We simply cannot compete. These legitimate businesses have closed down factories, causing loss of employments and collapse in tobacco tax revenue to the government, while the winners are the illegal operators,” he said.

In November 2015, the government raised the excise duty for tobacco by a hefty 36%, pushing prices of legal ciggies.

Despite the price hike, the latest JTI Malaysia Wave 1 Illegal Cigarette Study, conducted between March and May this year, showed that the cigarette trade remains high at close to 60% or about 2.8 billion sticks consumed over the period.

The study also revealed a rise in brands with fake tax stamps increasing to a record high of 7.4% of the illegal segment, a 50% increase over the same period last year.

He said JTI is considering “the level of our investment on an ongoing basis”.

“These have been devastating years for the Malaysian tobacco industry,” he said, adding that the formation of an independent body comprising various government agencies and industry representatives is needed to address contraband cigarette sales, to oversee policies and operations.