THE already worrisome trade and consumption of illicit cigarettes in Malaysia, particularly in Sabah and Sarawak, is expected to worsen with a possible tax increase for legal cigarettes.
Local tobacco industry players, led by the Confederation of Malaysian Tobacco Manufacturers (CMTM), feel the government’s aim to discourage smoking via a further tax increase on legal cigarettes will not succeed as long as illicit cigarettes continue to be sold in the country.
Illicit cigarettes comprise smuggled cigarettes (tax not paid) and counterfeit cigarettes (imitation brands) and are widely available locally for between RM2 to RM3 a pack — far below the mandated minimum price of RM7 for a legal packet.
The more popular brands ofillicit fags in the state include Luffman, Rave, Era, June Slims and Parkway, all of which are usually available ‘under the counter’ at most local coffeeshops and sundry stores.
This large price differential has naturally fuelled the demand for
illicit cigarettes among smokers who resort to this cheaper alternative as one way to cope with rising living costs.
And although the government has also reasoned that higher prices are meant to keep tobacco products out of the affordability of minors, the ready availability of cheap illegal fags calls into question this reasoning and also undermines the effectiveness of the ‘Tak Nak’ anti-smoking campaign.
It has been estimated that two out of every three cigarette sticks sold in East Malaysia are illegal, meaning that a further tax increase will only exacerbate an already serious problem which saw the country ranked top globally by
Goldman Sachs Group Inc in its Global Tobacco Report last year for the incidence of illicit cigarettes.
The rise of illegal cigarette trade from 2001 to 2010, fuelled by widening price gaps (source CMTM).
Furthermore, it has been established that the sharp increase in demand for illegal cigarettes over the past decade coincided with excise-led price increase on tobacco products although insufficient deterrent penalties and a reduction in consumer spending power have also contributed to this trend.
From a financial perspective, the government is estimated to have lost up to RM2 billion in revenue last year through non-collection of taxes from
smuggling activities linked to illicit cigarettes — money which could have been channelled towards development, education and other social needs.
Even though the government is expecting to reap more revenue from the legal cigarette industry through a tax increase, the actual amount lost to illicit cigarettes far outweighs any potential monetary gain.
Another point highlighted by CMTM is that high taxes on the tobacco industry meant to discourage smoking, thus protecting the health of Malaysians, will not achieve the desired results as more smokers will likely switch to buying illicit cigarettes whose contents are unregulated by health authorities unlike legal fags.
And although smoking is widely known to be detrimental to one’s health, the act of smoking the unknown contents of illegal cigarettes, especially in terms of tar and nicotine levels, must surely pose greater health risks compared to legal ones.
It has also been acknowledged that enforcement agencies such as the Royal Malaysia Customs Department have been trying their level best to stamp out the flow of illicit cigarettes into the country through constant raids and seizures.
However, this will ultimately prove to be a battle that would be extremely difficult, if not impossible, to win as the demand for these types of fags will continue to rise with each increase in tobacco excise, thus providing an impetus for smugglers to cash in and continue bringing them into the country.
Questions that need to be asked are:
– Why are illicit fags so readily available in the country, particularly Sabah and Sarawak?
-Are health authorities and other relevant agencies doing their part in checking and penalising premises that sell these types of cigarettes?
-Are existing laws, in terms of fines and jail time, sufficient to deter smugglers from bringing illicit cigarettes into the country?
-Are smugglers more inclined to bring illegal cigarettes into the country which has the third highest legal cigarette prices in Asean due to higher demand for cheaper options?
The tobacco industry is willing to accept a moderate tax increase by the government over a hefty one to avoid a spike in the incidence of illicit cigarettes.
However, the government’s health and revenue agenda will likely result in the latter being implemented.
This will only mean its short-term solution will ultimately result in long-term problems.