THE Government has to be realistic with setting an excise duty rate on vape-related liquid and gel (with and without nicotine) to the level that cash-strapped Malaysian smokers and vapers can stomach.
This is because making vaping unaffordable could spawn a whole new black market – just like the one that has devoured much of the cigarette industry in Malaysia, according to CGS-CIMB Research.
“We are concerned as to whether the Government has the will to be pragmatic,” opined analyst Kamarul Anwar in a company update of British American Tobacco Malaysia Bhd.
“Rather than simply revising down the excise duty rate, the Customs is postponing the levy indefinitely. Based on our conversations with vape industry players, the government had mulled taxing vape liquid since at least 2015.”
On Jan 3, the Royal Malaysian Customs Department announced that it would postpone the excise duty on nicotine-containing vape liquids/gels as well as increase excise duty rates for nicotine-free vape liquids/gels to a later date.
The levy which was supposed to begin on Jan 1 would now be imposed on “a later date” only, according to the Customs without offering any reason.
Under Budget 2022, Putrajaya had proposed an excise duty of RM1.20 per millilitre (ml) of nicotine vape liquid which is triple the current rate of 40 sen per ml.
In CGS-CIMB Research’s view, the ideal resolution to the impasse would be for the Customs to accede to the vape industry players’ requests to lower the excise duty rate.
“We think that these industry players were not protesting against imposition of the excise duty,” noted the research house.
“Rather, we believe that they want the industry to be legitimised and regulated – just that the excise duty should not push up the vape liquid’s retail prices to levels that consumers can ill afford.”
In a related development, CGS-CIMB Research is concerned that the indefinite postponement would put BAT Malaysia’s plan to distribute vapes in Malaysia in a limbo.
“However, this delay should be neutral for the group’s prospects since we believe that vapers would be fiscally burdened by the excise duty rate on vape liquid as proposed by the Government,” the research house pointed out.
“Our FY2021-2023F forecasts and DDM (dividend discount model)-based target price of RM14.38 (with a “hold” rating) do not incorporate sales contribution from vapes.”
At 10.10am, BAT Malaysia was unchanged at RM14.18 with 20,300 shares traded, thus valuing the company at RM4.05 bil. – Jan 5, 2021
