AT the recent Dewan Rakyat sitting, Datuk Seri Ahmad Maslan suggested conducting a two-year pilot programme to allow tobacco companies to sell legal cigarettes at RM8 per pack.
The Pontian member of Parliament and secretary-general of UMNO suggested halving tobacco taxes to curb the black market. The suggestion was met with agreement from the Retail and Trade Brands Advocacy Malaysia Chapter (RTBA Malaysia), a non-governmental organisation safeguarding supply chains and brands from criminal conduct.
Ahmad Maslan also said that Malaysia has the largest tobacco black market globally, accounting for 64 per cent of the market share.
Malaysia loses about RM5 billion in tobacco tax revenue every year, seeing as how cigarettes often vanish in Malaysia during the transshipment process before they get re-exported to another country.
The managing director of RTBA's Malaysia, Datuk Fazli Nordin stated, "The Malaysian Government has made the bold move to address the tobacco black market in Budget 2021.
"Several initiatives including strengthening the multi agency task force (MATF) with the participation of Malaysian Anti-Corruption Commission and National Financial Crime Centre as well as announcing restrictions on cigarette transshipment activities will help address the supply chain route for the tobacco black market to a certain extent," he said.
He added, "Nevertheless, the core factor driving the illegal cigarette trade is the wide price gap between legal and illegal products resulting in the current critical level of illegal cigarettes in Malaysia. There are international and local studies that support this."
A recent report by the Australian Parliamentary Joint Committee on Illicit Tobacco Market has acknowledged that Australia's price-based policies to control tobacco have been counter-productive.
According to KPMG's annual "Illicit Tobacco in Australia" report, following a 12.5 per cent ad hoc excise increase in May 2016, Australia's illicit tobacco had increased significantly from 14 per cent of the market in 2018 to over 20 per cent in 2019.
The Parliamentary Joint Committee report also revealed that in 2018 and 2019, a total of 633 tonnes of illicit tobacco were seized, which set a new record.
"Clearly, the numbers speak for themselves," Fazli commented with regards to RTBA's own "Illicit Tobacco in the Asia-Pacific Region: Causes and Solutions" report that was published in April 2020, which showed that the sales of illegal cigarettes in Malaysia rose from 37 per cent in 2015 to 65 per cent in 2020. This increase came following a substantial excise hike on legal products in 2015.
Fazli added, "As such, Datuk Seri Ahmad Maslan is spot-on in identifying excise reforms as a solution that can best complement the enhanced enforcement initiatives put in place in Budget 2021 to tackle the tobacco black market in a comprehensive manner."
Besides that, Fazli also said that there are tax experts who have agreed with this idea.
Recent newspaper reports have shown that the chairman of Tricor Malaysia, who is also the current president of the Malaysian Institute of Accountants, Dr. Veerinderjeet Singh, has proposed to allow tobacco companies to introduce a new product, taxed at a lower rate via a new excise tier.
In reference to Dr. Veerinderjeet's idea, Fazli said, "This will create a lower segment of legal cigarettes that can viably compete with illegal cigarettes based on price.
"RTBA Malaysia believes that this solution can effectively curtail the tobacco black market from a demand-driven perspective," he concluded.