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Budget 2021: Duty-Free No Longer Duty-Free?

Budget 2021: Duty-Free No Longer Duty-Free?

The government has proposed to impose excise duty on all cigarette and tobacco products in duty-free zones.

Kirat Kaur

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During the tabling of Budget 2021, Finance Minister Datuk Seri Tengku Zafrul Tengku Aziz announced that the government will impose an excise duty on cigarette and tobacco products beginning January 2021.

Surprisingly, the new cigarette tax includes several duty-free islands and any free zones throughout the country that have been selling duty free cigarettes – which raised many questions from industry players.

But first, where are Malaysia’s duty-free islands?

Dataran Helang, Langkawi.
(Credit: Tourism Malaysia)

Malaysia’s big four of duty-free islands are Langkawi, Tioman, Labuan and Pangkor- which, ironically, was made a duty-free island only last year in the Budget 2020.

Then Finance Minister Lim Guan Eng also added that Langkawi as a duty-free island will be further expanded and tax-exempt facilities will be provided to duty-free shops at Swettenham Port in Penang to further promote the tourism cruises sector.

However, as the Covid-19 pandemic wreaked havoc on the tourism sector, the far-reaching cigarette tax has drawn some criticisms.

A taxing burden on duty-free islands’ tourism

Credit: Shafwan Zaidon/Malay Mail

Langkawi Chinese Chamber of Commerce president Lee Han Eng said when the government made the announcement of imposing duty on cigarettes and tobacco products in all duty-free designated areas, it means all these products are no longer duty-free.

Duty free items are one of the main tourist attractions of these island. By charging tax on tobacco, tourism in these islands will suffer greatly – especially when they are already suffering from the pandemic.

We hope that the government could show more empathy to the businesses in their public policies. After all, the Covid-19 pandemic has devastated Langkawi’s tourism industry. It is beyond imagination and recovery seems so far away to date. Langkawi Chinese Chamber of Commerce wishes that the government will continue to make public policies that are more beneficial to the businesses.

Lee Han Eng, President of Langkawi Chinese Chamber of Commerce.

The Malaysia Budget Hotel Association (MyBHA) also chimed in with disapproval at the announcement, saying that this excise tax on cigarettes will likely diminish a vital source of income for budget hotel proprietors and retailers operating in these duty-free zones.

Credit: Malay Mail

Budget hotel operators are already pushed to near closure as a result of the global Covid-19 pandemic. Every single source of direct and indirect revenue is precious. It is our hope that the government will not impose tax that will add to their hardship but instead introduce initiatives that will help our members survive this ordeal, and eventually contribute to the economic growth of duty free islands.

Datuk Noorazly Rosly, Chairman of MyBHA (Langkawi Chapter).

MyBHA (Langkawi Chapter) chairman Datuk Noorazly Rosly also told New Straits Times that the higher cigarette prices would also encourage illegal smuggling of cigarettes by criminal syndicates.

And that’s not an empty warning.

Malaysia, unfortunately, has the enviable crown as the global leader in illegal cigarette trade.

Credit: @klimkin/Pixabay

More than half (64.5%) of the total cigarettes sold in the country today are illegal cigarettes, which equates to roughly 12 billion sticks of contraband cigarettes sold in a year.

While this issue has also been addressed in Budget 2021 by banning cigarette transshipment or export via ‘bot kumpit’ (small boats), the unexpected price increase may negate their efforts.

Noorazly argues that illegal cigarettes have never been an issue at duty-free islands like Langkawi. As he puts it “Why would one buy contraband products when the legal products cost the same?”

READ MORE: Malaysia Takes Giant Steps To Stub Out Illegal Cigarettes In Budget 2021


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