Malaysia lost an estimated RM11.5 billion (US$2.5 billion) in government revenue to illicit tobacco trade over the past two years, the second-highest loss among ASEAN’s six largest economies, according to a new report released by the EU-ASEAN Business Council and Euromonitor International.
The report found that Malaysia recorded the highest illicit cigarette market share in the ASEAN-6, with an estimated 57 per cent of cigarettes sold in 2025 classified as illicit, making it the only market in the region where illegal cigarette sales exceeded legal sales.
Across the ASEAN-6, illicit tobacco trade resulted in a combined US$13.1 billion in lost government revenue over the 2024-2025 period.
Indonesia recorded the largest losses at US$5.6 billion, followed by Malaysia and the Philippines at US$2.5 billion each.
The report estimated that the illicit tobacco market across the ASEAN-6 generated US$12.6 billion in revenue over the past two years, with illicit cigarette sales rising 14 per cent and illicit e-vape sales surging 24 per cent in the past year alone.
Malaysia also emerged as the region’s largest illicit e-vape market, generating an estimated RM1.7 billion (US$365 million) in 2025, with illegal products accounting for 67 per cent of total e-vape sales.
According to the report, demand for illicit tobacco products continues to be driven by lower prices and easy accessibility, while ASEAN’s interconnected trade routes and uneven customs enforcement have enabled illegal supply chains to flourish.
Illicit cigarettes are largely produced within the region, particularly in Indonesia and Cambodia, with additional supply from China. Meanwhile, Malaysia, Singapore and Vietnam were identified as key distribution hubs for illicit tobacco flows.
The report highlighted the exploitation of Free-Trade Zones (FTZs) and ports within the region, including Port Klang in Malaysia, for smuggling activities.
It also warned that online platforms and encrypted messaging applications have become increasingly important channels for illicit tobacco sales, making enforcement more difficult.
EU-ASEAN Business Council Executive Director Chris Humphrey said the scale of illicit trade in ASEAN is frequently underestimated despite its growing economic, public health and security implications.
“The scale of illicit trade across ASEAN is often sorely underestimated — and, more worryingly, growing at an alarming pace,” he said.
He added that illicit trade threatens ASEAN’s long-term economic resilience, particularly as governments face mounting fiscal pressures linked to supply chain disruptions and geopolitical tensions in the Middle East.
The report warned that revenue losses from illicit trade reduce governments’ fiscal capacity to fund infrastructure, healthcare, education and green investments, while also undermining legitimate businesses through unfair competition.
Beyond the economic impact, the study noted that illicit tobacco products pose higher health risks due to elevated levels of toxic chemicals and heavy metals, while profits from illegal trade may also fuel organised crime networks.
Head of Consulting for APAC at Euromonitor International, Firdaus Muhamad, said the decentralised nature of online tobacco sales makes enforcement increasingly challenging.
The report called for stronger ASEAN-wide cooperation, including enhanced customs coordination, improved supply chain oversight, greater use of digital and AI-powered enforcement tools, and closer collaboration between governments and the private sector.
The EU-ASEAN Business Council also proposed an ASEAN Leaders’ Declaration on Preventing Illicit Trade and Diversion as part of broader regional efforts to strengthen enforcement and protect economic resilience.
