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Making The Case For Cheaper Cigarettes In Malaysia

Making The Case For Cheaper Cigarettes In Malaysia

Malaysia loses RM5 billion annually in tobacco tax revenue.

Kirat Kaur

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In the last Dewan Rakyat sitting in December 2020, Datuk Seri Ahmad Maslan suggested that halving tobacco taxes to curb the black market as 64% of cigarettes sold in the country were illegal sticks, while only 36% were taxed, legal cigarettes.

The Pontian MP and former deputy finance minister proposed this be carried out in a two-year pilot programme to allow tobacco companies to sell legal cigarettes at RM8 per pack, which is closer to the price of a pack of illicit cigarettes in a bid to address a RM5 billion annual loss in tobacco tax revenue.

Will cutting cigarette prices work?

While Ahmad’s suggestion received no small amount of backlash online, this move is already in practice in some countries.

In late December 2020, Turkey lowered the special consumption tax on cigarettes and tobacco products to 63% in a move that could help ease some upwards pressure on inflation.

This move comes just five months after Turkey imposed a ban on the sale of hand-rolled cigarettes after hiking cigarette prices drove smokers to tobacco shops whose prices are far cheaper but its contents are difficult to trace – which is a problem Malaysia is extremely familiar with.

Tobacco and cigarettes on wood table background. World No Tobacco Day. ** Note: Soft Focus at 100%, best at smaller sizes

Malaysia’s HUGE illegal cigarette problem

Malaysia, unfortunately, is the global leader in illegal cigarette trade. Yes, 64.5% of total cigarettes sold in the country today are illegal cigarettes; translating to roughly 12 billion sticks of contraband cigarettes sold in a year.

This issue is part of Malaysia’s shadow economy which Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz states accounts for 21% of Gross Domestic Product (GDP) or around RM300 billion annually.

The government has already announced steps to address the illegal cigarette trade during the tabling of Budget 2021, including a multi taskforce agency, restricting transshipment of cigarettes and freezing the issuance of import licenses for cigarettes.

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

But some are saying that’s not enough.

Experts agree cheaper cigarettes can destroy the black market

In a recent roundtable by NST on the shadow economy, newspaper columnist and investment and economic analyst and commentator Pankaj Kumar said that the demographics of smokers today are dominated by the B40 segment.

Assuming a pack of 20 cigarettes costs RM17.40 and if one smokes 20 packs a month, that’s RM350 a month or equivalent to 16% of our current Poverty Line Income (PLI) at RM2,208 per month for 2019.

Pankaj Kumar, newspaper columnist and investment and economic analyst and commentator via NST.
Credit: Miera Zulyana/Malay Mail

With such high concentration in expenditure, Pankaj points out that seeking out cheaper cigarettes is a natural consequence for poor smokers – they just can’t afford legal cigarettes.

To address this, Dr Veerinderjeet Singh, Chairman of Tricor Malaysia and Malaysian Institute of Accountants President, recommended that tobacco companies be allowed to introduce a new product that is taxed at a lower rate via a new excise tier.

He said this will create a lower segment of legal cigarettes that can viably compete with illegal cigarettes based on price.

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