Lower cigarette tax won’t affect illegal sales, Putrajaya told

Illegal cigarettes exceeded 60% of the total cigarette sales in the country in 2019.

PETALING JAYA: Lower taxes are not a viable measure to counter sales of contraband cigarettes, according to the head of a major tobacco company here.

Cormac O’Rourke, managing director of Japan Tobacco International (JTI Malaysia) Bhd said a reduction of taxes on cigarettes would not solve the problem.

“It is estimated that with an RM2 per pack reduction in excise taxes, as an example, the government would lose around RM600 million a year in tax revenues.

“On the other hand, a reduction in illegal cigarettes trading by 50% would immediately bring back at least RM1 billion of revenue to the government,” he said.

Cormac O’Rourke

He said that without enforcement to curtail the smuggling and sale of contraband cigarettes, “any price and tax measures to address the issue would be easily nullified by price adjustments by the illegal trade”.

“The minimum retail price for cigarettes currently set by the health ministry is RM10 per pack. Given the scale of illegal cigarette sales in Malaysia, which is the highest in the world, any reduction of tax will not address the problem as all illegal brands are priced well below this minimum price level set for our products,” he told FMT.

O’Rourke said the illegal cigarette trade in Malaysia is a national concern as contraband cigarettes comprised 62.3% of total sales in 2019.

Based on the Illicit Cigarette Study commissioned by the Confederation of Malaysian Tobacco Manufacturers, it is estimated that about 12.2 billion sticks of contraband cigarettes were sold and consumed in Malaysia in 2019.

Smuggling and the sale of illegal cigarettes causes the loss of an estimated RM5 billion in tax revenues to the government, undermines legal cigarette sales, and exposes consumers to the dangers of unregulated products, O’Rourke said.