Review cigarette tax as tourism and retail will suffer more

The tax will likely affect sales of budget hotel proprietors and retailers operating in duty-free zones, says expert

by PRIYA VASU & NUR HANANI AZMAN / pic by ARIF KARTONO

IMPOSING tax on cigarettes and tobacco products in all duty-free islands should be reviewed as it will hurt the tourism and retail sectors further, industry players said.

The Malaysia Budget Hotel Association chairman for Langkawi Datuk Noorazly Rosly said the tax will likely affect sales of budget hotel proprietors and retailers operating in these duty-free zones.

“Most of our members have retail outlets or convenience stores operating within their properties. By imposing tax on popular consumables, sales volume and revenue will surely drop.

“Budget hotel operators are already pushed to near closure as a result of the global Covid-19 pandemic. Every single source of direct and indirect revenue is precious,” he said.

In the Budget 2021 announcement, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said taxes would be imposed on cigarettes and tobacco products on all duty-free islands and any free zones that have been permitted to sell duty-free cigarettes.

In addition, Noorazly said making cigarettes more expensive may incentivise criminal syndicates to bring in contraband cigarettes that target both locals and tourists.

“This may lead to negative socio-economic consequences that are associated with illegal cigarette trade,” he added.

He noted that the issue of illegal cigarettes has never been prevalent in duty-free islands like Langkawi.

“Why would one buy contraband products when the legal products cost the same?

“Given the current challenging operating landscape, we cannot afford to lose tourist arrivals because of unwholesome perception and experience,” he said.

Malaysian Association of Tour and Travel Agents president Datuk Tan Kok Liang said in the current sluggish situation, the government should give local tourism the added advantage to draw in domestic travellers.

“Local tourism in the island is severely affected. Why take away this privilege when they are suffering? Duty-free is a draw card.

“Among the reasons people visit Langkawi is to buy cigarettes. The government really needs to consider this,” he told The Malaysian Reserve (TMR).

Meanwhile, the Malaysian Association of Hotels CEO Yap Lip Seng said duty-free status is no doubt a tourism attraction by itself, and removing selected parts may affect its overall appeal.

“For tourism, it would seem as bad timing, but for taxation and public health reasons, the government would see it as the right time,” he told TMR.

The ZON Duty Free — a member of Atlan Holdings Bhd Group of Cos, one of the largest duty-free retailing groups in Malaysia — said the proposed excise tax on all cigarettes and tobacco products at duty-free areas will cause a negative multiplier effect on the Malaysian economy.

“Duty-free retailers like us are already struggling very hard to cope with the severe drop in tourism and travel activities during the ongoing Covid-19 pandemic.

“In fact, duty-free sales are expected to decrease by US$29.4 billion (RM120.25 billion) in the Asia-Pacific region this year, according to the market research firm, Globaldata.

“Clearly, it is the wrong time to impose excise duty on cigarettes and tobacco products in duty-free areas. These products are very popular with international and domestic travellers and form a significant part of a duty-free retailers’ revenue,” Ong Bok Siong, director of The ZON, said in a statement.

Ong added that The ZON also expects consumer spending to be conservative in the near future.

“If the industry’s revenue stream is pressured even further, some duty-free retailers may be forced to reduce its workforce or close altogether. Surely, this outcome is misaligned with the federal government’s aim to reinvigorate the economy that has been hurt by the crisis,” he said.

Meanwhile, Japan Tobacco International Bhd MD Cormac O’Rourke said illegal cigarette trading has already reached alarming levels with 65% of all cigarettes consumed in Malaysia being illegal, and they had called on the government to take substantive measures such as the banning of transshipment of cigarettes through the ports in the country.

“It is well known that this method has served as a loophole for the criminal syndicates to continue to flood cheap illegal cigarettes into the market. This, too, has been true for duty-free islands.

“It has come to the point where the government needs to take serious enforcement measures to address the issue to recover the RM5 billion loss annually in uncollected taxes. The benefit to the exchequer in terms of tax collection and the tackling of criminal activity in the country needs to take precedence at this time,” he told TMR.

O’Rourke said based on industry modelling, every one percent decline in illegal trade would translate into close to RM100 million tax recovery for the government.

Completely eradicating the illegal trading of cigarettes would yield in the region of RM5 billion annually, he added.


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