SMOKING cigarettes has become an expensive habit in Malaysia. A 20-stick pack of cigarettes which cost less than RM5 over a decade ago is now priced three times higher.
Due to availability of illegal cigarettes at half the legal minimum price legislated by the Government, more smokers are switching away from the legitimate market and turning to cheap, smuggled cigarettes in the recent years.
Thus, it is not surprising that Malaysia became the largest consumer of illegal cigarettes in the world with an estimated total of 12 billion sticks of illicit cigarettes sold in 2019 (62% of worldwide sales of illegal cigarettes).
Last year, the Illicit Cigarettes Study (ICS) commissioned by the Confederation of Malaysian Tobacco Manufacturers (CMTM) revealed that 64.5% of all cigarettes consumed in August 2020 was illegal, an increase of 2.5% from 62% in July – or simply seven out of 10 cigarette packs are illegal.
Therefore, illegal cigarette trade has become rampant in Malaysia thanks to its lucrative appeal. Priced around RM5 or cheaper, the tobacco black market has been flourishing in Malaysia.
Where it all started
In 2019, FocusM highlighted that the illicit cigarette situation has become critical due to hyper taxation, ill-conceived regulatory policies and corruption-impacting enforcement.
In late 2015, the then Government led by Datuk Seri Najib Tun Razak introduced a 40% excise tax increase on tobacco which led to the soaring sales of illegal cigarettes since then.
The scale of smuggling increased dramatically after the 2015 excise hike. The price increase took a toll on the country’s legal cigarette industry as the consumption and demand for legal buds have declined significantly – and the industry has never recovered.
Not only the industry players suffered in terms of revenue and sales, the Malaysian Government is also at the losing end. The illicit cigarette trade cost the country almost RM5 bil in excise duties yearly.
Furthermore, the tobacco black market not only fuels criminal syndicates and poses security threat to the nation, it also undermines the health agenda of the country with respect to smoking.
A 2015 study by Universiti Malaya (UM) found that illicit cigarettes contain three times more tar and nicotine than that permissible by Malaysian law. In addition, illicit cigarettes have the tendency to be laced by other unknown chemicals, which could pose serious health risk to smoker and second-hand smoker’s lungs.
Snipping the bud
On this matter, the Government has taken a series of measures to curtail illegal cigarettes trade introduced in Budget 2021 which include limiting transhipment of cigarettes to dedicated ports, imposition of tax on the import of cigarettes with drawback facilities for re-export and disallowing re-export of cigarettes by small boats (which eventually forces criminal syndicates to focus on smuggling through coastal areas instead of the ports).
In fact, the counter measures by the authorities have started to see results with British American Tobacco (M) Bhd posting a stronger turnaround for its 2Q FY2021 with a 31% year-on-year (yoy) jump in net profit to RM71.62 mil.
The cigarette producer attributed the good financial results partially to the embryonic progress by the Government in addressing the tobacco black market.
Nevertheless, more coordinated action and a holistic approach are needed to tackle the growing illegal cigarette trade. The legitimate tobacco industry in Malaysia is in need of clear commitments from the Government and stringent regulations imposed to protect the industry. – Aug 1, 2021
Photos credit: NST
