JTI Malaysia calls for concrete action against illicit cigarettes


JAPAN Tobacco International Bhd (JTI Malaysia) has called for concrete policy actions against the illegal trade of cigarettes such as a ban on the transshipment of cigarettes and by designating a single point of entry to support enforcement efforts better.

MD Cormac O’Rourke (picture) said in addition to RM5 billion in revenue shortfall each year, Malaysia should also take into account income losses from illegal vaping, which is estimated at RM2 billion annually.

He said the government should continue the moratorium on tax excise increase for at least two more years to prevent further losses.

“Certain quarters are calling for a tax hike on tobacco products in the upcoming Budget 2021, but we must caution the government in the strongest possible manner not to impose any tax excise increase on tobacco products. This will only serve to worsen the situation and further damage legitimate retailers’ businesses which are already under pressure.

“An excise hike this year would widen the price gap between legal and illicit trade and will inflict damage on the legitimate industry and small and medium-sized enterprises (SMEs) alike,” he told reporters in a virtual press conference last Friday.

O’Rourke said there are some 60,000 retailers who derive up to 30% of their revenue from tobacco sales.

“I think there is a real need now to support SMEs. The Finance Ministry has the opportunity to do so by allowing third duty payment for the legitimate tobacco sector.

“This will improve the cashflow for the legitimate tobacco sector, and we can pass this on to our SME partners. Many of these 60,000 retailers are struggling now when it comes to liquidity,” he explained.

O’Rourke said the legal tobacco industry, directly and indirectly, supports 500,000 jobs in Malaysia adding that an excise tax increase is in no way justifiable as the industry has reached the stage of diminishing returns.

The latest illicit cigarettes study commissioned by the Confederation of Malaysian Tobacco Manufacturers revealed that a staggering 64.5% of all cigarettes consumed in August was illegal.

To compare, the illicit cigarette consumption in July was 62%.

Both Kuala Lumpur and Selangor recorded more significant spikes in illicit cigarette usage to 66.5% and 65.7% respectively compared to 61% and 60% in July.

JTI Malaysia expects its sales volume to stabilise in the second half of the year (2H20), driven by the gradual reopening of businesses since the Conditional Movement Control Order came into force.

The tobacco market would still remain soft and may trend slightly downwards compared to 2019, O’Rourke said, but the overall performance for 2H20 will likely improve from 1H20 if there are no further lockdowns.

“For the company, the duty-free portion had essentially been non-existence this year as a result of the non-travel restriction. In Malaysia, about 60% of the volume at duty-free airports were purchased by Malaysian passport holders.

“Some of that volume, which is normally purchased in duty-free shops, are now being purchased in the domestic market. This is why we are seeing some volume stability in 2H20,” he said.