Illicit tobacco trade hit by Covid-19 controls

Cigarette smuggling costs the government between RM5 billion and RM6 billion in uncollected tax annually.

PETALING JAYA: A recent drop in the trafficking of smuggled cigarettes across Asia provides policymakers with an insight into sustainable methods of dealing with the illegal trade.

According to a report released by Japan Tobacco International (JTI), strict movement controls and stringent border enforcement in Asian countries because of the Covid-19 pandemic have made it difficult for crime syndicates to receive and distribute smuggled stock.

Cigarettes smuggled from countries like Indonesia and Thailand can be sold in Malaysia for as low as RM3 a packet and make up an industry worth more than RM5 billion a year.

Shaun Edward Cheah, executive director of the Malaysian International Chamber of Commerce and Industry (MICCI), told FMT an effective strategy against the illegal traffic would be to continue with and improve upon the control measures that were now restricting the movement of smugglers.

Shaun Edward Cheah

“To curb smuggling, the entry points into Malaysia need to have more robust tamper-proof systems and infrastructure,” he said.

“Enforcement agencies need to have better resources and access to information to clamp down on smuggling activities.”

Cheah noted that the government had in the past raised taxes to discourage smoking, but he said tax measures would only intensify the demand for illegal products.

“Extensive studies have shown that using high punitive duties does not deter or abate consumption patterns,” he said.

“The focus has to be on enforcement and on suspending tax increases at this time to ensure demand for illegal products does not increase.”

JTI managing director Cormac O’ Rourke said the illicit cigarette trade had cost not just the company, but the country at large.

Cormac O’ Rourke

“In Malaysia, cigarette smuggling is big business for criminal gangs and costs the government between RM5 billion and RM6 billion in uncollected tax revenues annually,” he told FMT.

“This is money that could be better put to use to improve the economic outlook for all Malaysians.”

O’Rourke said his company had proposed to the government a number of measures to fight smuggling, including a ban on the transhipment of cigarettes.

During transhipment, a freight vessel can illegally dump cargo while transiting in an intermediary country, he said.

Cheah agreed that transhipment needed to be addressed by putting in place a tamper-proof system to ensure their entry and exit.

He suggested a deposit equal to owed duty that could be “held and refunded once the transhipper can show that the shipment has exited to a third country”.