KUALA LUMPUR: The illegal cigarette trade has reached a staggering 62.3 per cent of the total cigarette sales in Malaysia last year.
JT International Bhd (JTI Malaysia), a member of the Japan Tobacco Group, said about 12.2 billion sticks of contraband cigarettes were sold in the country last year.
The tobacco manufacturer said the number of illegal cigarette trade had increased 3.4 percentage points year-on-year from 58.9 per cent recorded in 2018.
JTI Malaysia shared these numbers from an illicit cigarette study conducted by research house Nielsen and commissioned by the Confederation of Malaysian Tobacco Manufacturers.
JTI Malaysia managing director Cormac O’Rourke expects sales of illegal cigarettes to grow at least 10 per cent annually if there was no change in a regulatory framework and enforcement here.
“The illegal cigarettes trade in Malaysia continues to be rampant and has escalated substantially over the last four years with at least six in every 10 cigarettes consumed locally being illicit,” O’Rourke said at a press conference after presenting the current situational update on illegal cigarette trade in Malaysia here yesterday.
O’Rourke said the increase number of illicit cigarettes had necessitated strong and decisive action on policy and enforcement to address the situation.
The government has lost about RM5 billion in tax revenue annually from illegal cigarette trading in Malaysia.
“We have called for the establishment of a body to coordinate enforcement and policy matters involving various law enforcement and regulatory agencies last year.
“Hence, we view positively on the recent establishment of a Multi-Agency Task Force (MATF) by the Ministry of Finance (MoF) and led by the Royal Malaysians Customs to comprehensively combat illegal smuggling and illegal trading in Malaysia,” he added.
He said MATF presents an opportunity for the government to get eradicate illegal cigarette trading, which in turn would stamp out the black economy, which is estimated at 21 per cent of the country’s growth of about RM300 billion per year.
He said the Ministry of Health’s proposal to amend control of tobacco products regulations 2004 and raise a minimum price from RM10 to RM15 would accelerate demand for contraband cigarettes.
O’Rourke said the company had proposed a reward mechanism of up to 20 per cent from a RM100,000 fee imposed on illegal cigarette traders be given to enforcement officers.
“However, the final decision should be with the MoF and I think it (reward) needs to be significant.
“If we look across the various ministries involving domestic trade, the MoH, the Customs and police, there is not enough enforcement agencies out there.
“We need to coordinate and put key performance indicators must be wmployed by the enforcement agencies in terms of what level of enforcement they should have at retail, wholesale and ports,” he said, adding that most illegal cigarettes were coming from Indonesia and the Philippines.
O’Rourke said government-to-government cooperation should be enhanced to ensure special information sharing about illegal cigarettes coming into the country.
“The first point of attack it has to be at the ports. We have proposed a single port inventory to make it easier for enforcement officers to manage this problem.
“If we have a single port inventory and coupled with a transhipment ban - restriction around transhipment would reduce the volume of cigarettes coming into the country,” he said.
O’Rourke said earnings for cigarettes producers in Malaysia continued to be under pressure since 2015 due to the increase in illegal cigarettes trading.
“Their businesses are pressured and have to take necessary measures in terms of the level of investment into the country and workforce.
“There has been already a significant loss of investment into the country. All big players like Japan Tobacco International, British American Tobacco and Philipp Morris have ceased their production and moved offshore.
“We have to make further investment efficiency in the market place by looking at the cost of doing business here,” he said.
JTI Malaysia said the amount of contraband seizures in 2019 indicated greater effort was required to fortify the borders and entry points.
Last year, the Customs Department seized 466.16 million sticks of illegal cigarettes compared to 843.89 million sticks in 2018.