Illicit cigarette trade spike to historic 64.5% high - Focus Malaysia

TARGETED measures to curb the smuggling of contraband tobacco products should be accorded utmost priority now, not calling for a tax hike on tobacco products in the upcoming Budget 2021.

This is because any attempt to raise excise tax on tobacco products will only serve to worsen the proliferation of illegal cigarettes while further damaging the business of legitimate retailers which is already coming under severe pressure, , according to Japan Tobacco International Bhd (JTI Malaysia) managing director Cormac O’Rourke.

“An excise hike this year would widen the price gap between legal and illicit trade and will inflict damage on the legitimate industry and SMEs alike,” he told a virtual media conference on illegal cigarette trade in Malaysia today.

“There are some 60,000 retailers who derive up to 30% of their revenue from the selling of tobacco not to mention government tax revenue.”

An Illicit Cigarettes Study (ICS) commissioned by the Confederation of Malaysian Tobacco Manufacturers (CMTM) reveals that a staggering 64.5% of all cigarettes consumed in August was illegal as opposed to 62% in July.

The numbers look even more devastating for Federal Territory and Selangor where illicit cigarette usage spiked dramatically to 66.5% and 65.7% respectively in August from 61% and 60% the previous month.

The illicit cigarette trends for the country overall point to a worsening illicit cigarette proliferation following on from the impact of COVID-19 movement controls imposed in Q1 2020, which continues to pressure the margins of legal tobacco companies and retailers in Malaysia.

Pitted against a severe economic downturn due to the COVID-19 pandemic, O’ Rourke said the legal tobacco industry directly and indirectly supports 500,000 jobs in the country.

As such, an excise tax increase is in no way justifiable as cigarette manufacturers have already reached the stage of diminishing returns.

“With COVID-19 wreaking havoc on the economy with the government experiencing revenue shortfalls, the Multi-Agency Task Force (MATF) could be an effective vehicle to help Malaysia claw back lost taxations from the black economy,” proposed O’ Rourke.

The MATF comprise policymakers, enforcement officers from the various wings of the government as well as relevant private sector players to focus specifically on cracking down on organised smuggling operations at the country’s borders.

JTI alongside other industry players have proposed that the government enhances its enforcement efforts with strong policy measures to combat smuggling activities once and for all.

About 12 billion illegal cigarettes are sold in Malaysia annually, the majority brought into the country through the abuse of transhipment routes via the country’s ports.

In this regard, O’ Rourke urged the government to pay attention to the issue of transhipment of tobacco products through unlimited entry points at the country’s borders.

“Such transhipment loophole has been exploited for diverting duty-evaded tobacco products into the country with the false intent of moving the items to a neighbouring country,” he cautioned.

JTI called on the Government to clamp down on transhipment foul play by imposing a ban on tobacco product transhipment and designating a single point of entry to support enforcement efforts better.

In addition to the annual lost revenue in excess of RM5 bil, Malaysia should explore lost revenues from illegal vaping which is estimated to be worth RM2 bil annually, added O’ Rourke. – Oct 30, 2020