FOR every 10% increase in excise duties, illicit tobacco trade incidence could increase by as much as two percentage points, potentially causing the Government to lose an additional RM254 mil in uncollected excise taxes.
The Datametrics Research and Information Sdn Bhd’s (DARE) Winning the War on Tobacco Black Market study revealed that criminal syndicates currently reap RM8 bil per annum in total sales revenue of illicit tobacco products in Malaysia, while the Government losses around RM5 bil in uncollected tax revenue.
As of May 2021, the illicit tobacco market in Malaysia stands at 57.9%, according to the Illicit Cigarettes Study May 2021 report.
“Our study clearly shows that raising excise duties for tobacco products is counter-productive,” commented DARE’s managing director Pankaj Kumar. “Instead of increasing the Government’s revenue, placing more taxes on legal tobacco products will only drive more consumers towards cheaper alternatives.”
In addition to causing the Government to lose more in uncollected tax revenue, this can also exacerbate other socio-economic problems like systemic corruption across enforcement agencies fuelled by the ill-gotten gains of this trade, deeper criminal penetration into the country’s policymaking bodies, and reduced investor confidence as the rule of law in Malaysia comes under threat.
Even if excise duties were to remain as it is, study by the non-governmental think tank shows that the illicit tobacco trade may still rise due to the affordability factor.
In a survey commissioned by DARE and carried out by its market research partner, The Green Zebras, most smokers (53%) have said that they will switch to cheaper but illicit alternatives because they just cannot afford legal products at current prices.
“More and more consumers are faced with income crunch as a result of job losses and pay cuts due to the COVID-19 pandemic,” justified Pankaj.
“As legal tobacco products are very expensive compared to the illicit, demand for black market products can only increase, and criminal syndicates will naturally do what it takes to fill this need and make a big profit.”
In providing policy solutions to this problem, Pankaj recommends that Budget 2022 to include:
- Better enforcement, especially at the coastal areas;
- Maintaining excise moratorium to reduce tax revenue leakages;
- Reducing price gaps between legal and illicit tobacco products by reducing sky-high duties; and
- Imposing stricter legislative moves to clean up illicit tobacco products sold in the market
“Malaysia needs to resolve this issue in order to generate funds towards the fulfilment of the 12th Malaysia Plan,” added Pankaj. – Oct 6, 2021
