RM5b loss in taxes due to illegal cigarette trade

Illegal cigarette trades in Malaysia continue to be rampant and have escalated over the last 4 years


THE country lost about RM5 billion in uncollected taxes due to the illegal trading and the use of 12.2 billion sticks of contraband cigarettes last year, according to a study commissioned by the tobacco industry.

The Illicit Cigarette Study released by JT International Bhd (JTI Malaysia) showed illegal cigarette trade reached 62.3% last year compared to 58.9% in 2018, a 3.4% increase.

JTI Malaysia MD Cormac O’Rourke said illegal cigarette trades in Malaysia continued to be rampant and had escalated over the last four years with at least six in every 10 cigarettes consumed locally were contrabands.

“If we look at the only public-listed company in Malaysia which is British American Tobacco (M) Bhd (BAT), their earnings continue to be under pressure since 2015 with the increase of illegal cigarettes.

“Our business is also pressured and we have to take necessary measures by looking at the level of investment we make in this country including the number of people we employ.

“That’s an unfortunate reality when you lose such scale due to illegal trading of cigarettes,” he said yesterday.

BAT Malaysia and JTI Malaysia in 2017 shuttered their manufacturing plants in the country, with about 500 people laid off.

Malaysia tops the list of illicit tobacco trading at 63%, followed by Uganda (57%), Brazil (54%), Ecuador (41%) and United Arab Emirates (39%).

The Illicit Cigarette Study was conducted by research house Nielsen and commissioned by the Confederation of Malaysian Tobacco Manufacturers.

O’Rourke said the amount of contraband seizures last year indicated the need for a greater effort to fortify the country’s borders and entry points.

Recent reports from Royal Malaysian Customs showed the department seized 466.16 million sticks of illegal cigarettes last year, lower than the 843.89 million sticks seized in 2018.

“The number of illegal cigarettes seized in 2019 was significantly lower compared to the estimated 12.2 billion illegal cigarettes sold in the country. There is no doubt that the proliferation of illegal trading over the years has a significant cost on the legal industry and jobs, while also contributing to the black economy in the country,” he added.

O’Rourke said any effort to address illegal cigarette trading must be accompanied by a cohesive Cabinet-level policymaking that supports efforts of the multi-agency task force (MATF).

He said the Ministry of Health’s (MoH) plans to amend the existing Control of Tobacco Products Regulations 2004 and to increase the minimum cigarette price from RM10 to RM15 as an example of how inconsistent policymaking can derail the MATF efforts and worsen illegal cigarette sales.

O’Rourke said there is also the threat of illegal vaping which accounts for about 10% of the total consumption in the market.

He said MoH has yet to decide the regulatory approach despite the proliferation of the illegal products in the market.

“Based on a recent consumption pattern study conducted by Ipsos, approximately 30% of illegal vaping users, above the age of 18, are previous non-smokers and are now consuming unregulated products, despite existing controls and restrictions over such products under the Poison Act,” he said, adding that the figure would be higher if the numbers of underaged users were included.