Is Malaysia Facing A Losing Battle Against Illegal Cigarette Trade?

The study conducted by Nielsen and commissioned by the Confederation of Malaysian Tobacco Manufacturers (CMTM), shows twelve billion illegal cigarettes sold in 2018.

JT International Berhad (JTI Malaysia) announces that the illegal cigarette sales in Malaysia in 2018 has escalated to 58.9 percent, an increase of over 3.3 percent from 2017. This has stamped Malaysia as the No. 1 in the world for illegal cigarette sales.

Cormac O’Rourke, Managing Director of JTI Malaysia, says, “Malaysia is, regrettably, one of the few in the world where illegal cigarette sales continuously thrive unabated with the situation now surpassing crisis levels. The situation can only be addressed by a greater and sustained level of strategic enforcement to curb the supply and demand of these illegal cigarettes. This illegal trade has caused the country to lose up to RM5 billion in uncollected tax revenues and these losses will look set to continue, despite the commitment made by the Ministry of Finance Lim Guan Eng in the Budget 2019”.

This indicates that more needs to be done and a multi-agency approach needs to be implemented to improve the situation.

O’Rourke adds, “One of the key reasons the enforcement actions have not been able to contain and deter the overwhelming presence of illegal cigarette sales in Malaysia is the lack of effective and coordinated enforcement efforts which enable illegal cigarette smugglers to manipulate existing policy loopholes and take advantage of porous borders as main smuggling routes into Malaysia.”

The study also shows it is most widespread in East Malaysia and the East Coast reaching an all time high of 80 percent and 70 percent, respectively. In other states, it ranges between 40 percent to 55 percent. The results also highlighted a worrying increase in smuggled cigarettes with fake tax stamps since 2016.

O’Rourke proposes three (3) key measures which can address the situation:

  1. An excise moratorium for the next three (3) years to avoid price shocks.
  2. A ban on transhipment for cigarettes at entry points in Malaysia which has been manipulated to bring illegal cigarettes into the country. There should only be a single point of entry for any importation of cigarettes into Malaysia.
  3. Establish an independent body to lead a special taskforce  to address the situation, comprising multiple relevant government agencies.
“The Government must carefully review any additional technological measures for tax stamps which would increase costs but have had no impact in reducing the proliferation of illegal cigarettes in Malaysia. It would not be prudent to attach such high costs associated with the current tax stamp regime especially against the backdrop of high levels of illegal cigarette sales,” says O’Rourke.

Enforcement of existing regulations should be the focus, given that 60 percent of all cigarettes consumed by Malaysian today comply with no regulation in force. This is clearly a policy failure by the Government. Thus, the Government cannot choose to ignore.

Illicit Cigarette Study (ICS), is a comprehensive analysis study conducted thrice annually by collecting 51,000 discarded packs from rural and urban areas nationwide. The packs are coded and verified for their security features and the absence of the local tax stamps, signs of non-authentic packaging or stamps, and other indications of potential tax evasion or contraband products.

 

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