Demand for illicit cigarettes heightened amidst MCO

RETAIL and Trade Brand Advocacy (RTBA) said the travel restrictions, movement control order (MCO) and tighter scrutiny by enforcement agencies at border checkpoints and expressways have done nothing to disrupt the illicit trade supply chain in Malaysia.

“Recent feedback from industries and enforcement agencies indicated that instances of illicit trade in Malaysia remain high as syndicates and perpetrators utilise innovative ways to circumvent the more intense spotlight cast by the authorities due to the Covid-19 pandemic,” its managing director Heath Michael said in conjunction with the launch of the RTBA’s Illicit Tobacco in the Asia-Pacific Region: Causes and Solutions report today. 

RTBA is a non-governmental organisation that safeguards businesses from criminal conduct.

“In the case of illicit tobacco trade in Malaysia, our research has found that demand for illicit cigarettes has increased during the MCO period as legitimate manufacturers are not allowed to distribute cigarettes, which are not considered as essential items.

“The syndicates have intensified their use of e-commerce and social media platforms along with e-hailing and courier services to meet the heightened demand.

“This trend is worrying as it defeats the national health agenda to encourage Malaysians to quit smoking during MCO while extending the government’s loss of revenue,” Michael added.

He added that Malaysia is not only losing more than RM5 bil annually in revenue to illicit tobacco trade but it has, together with China, Vietnam, Indonesia and Singapore, also been identified as a lead vector in the spread of illegal tobacco throughout the region.

“We found that illicit tobacco, primarily manufactured in China, is shipped into Malaysia before being distributed across the rest of Asia, and further destinations, including Australia. We expect this transnational supply chain to remain intact as multinational organised crime finds clever ways to export and import illicit cigarettes during the Covid-19 pandemic,” Michael explained.

He added that the Bureau of Internal Revenue Philippines recently seized over a million packs of illicit cigarettes in the Pampanga province of Central Luzon. “These contraband products were supposed to be shipped to Malaysia for local consumption as well as to be exported elsewhere.”

Illicit trade of tobacco continues to cause substantial revenue loss for governments and legitimate businesses in the Asia-Pacific region. 

“In terms of revenue alone, total tax loss estimated across 19 monitored markets in the region was over US$5.8 bil (RM25.3 bil) in 2017, with nearly 50% of this occurring in just two markets; Australia and Malaysia,” Michael added.

“Latest news reports have indicated that both the Ministry of Health Malaysia and the Royal Malaysian Police have acknowledged the current situation and have vowed to crack down hard on the online sale of illicit tobacco. This is clearly a move in the right direction, though its effectiveness remains to be seen.

“The Malaysian government can do more to cripple the illicit tobacco trade permanently by further strengthening vulnerable border points; increasing international cooperation and cross-border intelligence sharing; and implementing demand-driven solutions that address the price gap between legal and illicit tobacco.

“Taking out this illicit trade segment once and for all will immediately put RM5 bil per year back into the Malaysian government’s coffers. This amount can already fund 50% of the RM10 bil stimulus package for small and medium enterprises (in Prihatin Tambahan),” Michael concluded. — April 8, 2020

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