70% of all cigarettes sold by end-2020 will be smuggled stuff, says tobacco firm

More smokers in Malaysia are buying cheaper illegal cigarettes in the wake of the economic fallout from the Covid-19 pandemic.

PETALING JAYA: JTI Malaysia has warned that the share of illegal cigarettes sold in Malaysia may rise to 70% of total sales by the end of the year.

As it is, the share of contraband cigarettes in the country is already the highest in the world at 62.3% of total sales last year – an increase from the 58.9% recorded in 2018.

Speaking to FMT, JTI Malaysia’s director of corporate affairs and communications Azrani Rustam said they anticipated demand for contraband products to increase in the coming months as consumers struggle with the economic fallout of the Covid-19 pandemic.

“Based on the increasing trends captured in the Illicit Cigarette Study conducted by (research house) Nielsen, post the Movement Control Order (MCO) period, the illegal cigarette trade is heading towards the 70% level by the end of 2020 unless further comprehensive and deterrent actions are taken collectively by various government and law enforcement agencies,” he said.

Malaysia is one of the few countries in the world where illegal cigarette sales continue to thrive, with black market consumption hitting an estimated 12.2 billion sticks last year.

Illegal cigarette packs containing 20 sticks are being sold for as low as RM3 and this, coupled with the ease of supply and distribution, means Malaysia’s efforts to contain the black market trade has yet to bear fruit.

However, Azrani was optimistic that the re-establishment of the Multi-Agency Task Force (MATF) last month would serve as a key tool to combat the illegal cigarette problem which cost the country about RM5 billion in uncollected tax revenue in 2019.

Led by the Customs Department, the taskforce also involves ministries and agencies such as the ministry of finance, ministry of health, ministry of domestic trade and consumer affairs, and the police.

Azrani said the illegal cigarettes arrived at the many ports in the country.

“They are brought here in containers and declared as non-taxable goods destined for neighbouring countries.Before leaving for their designated ‘destinations’, these containers are smuggled out into the Malaysian black market,” he said.

Azrani noted that Malaysia’s reputation as a transit point for smuggled cigarettes was growing after seven million illegal cigarettes from Malaysia were seized in New Zealand in the last seven weeks alone.

Most of these cigarettes are manufactured in neighbouring countries, and Azrani said the cigarettes smuggled into New Zealand were “undoubtedly” brought in through Malaysian ports in containers, declared as goods in transit and then sent to a third country.

Highlighting how the government had previously issued a ban on the transshipment of rice into the country to curb its smuggling, Azrani said a similar ban on tobacco products – given the national security concerns over smuggling – would serve as a practical solution without incurring high costs to deploy human resources and equipment at major ports.

“What makes the transshipment route attractive is the regulatory and operational loopholes. Shipments declared as transshipped are likely to be inspected less strictly than other stocks,” he said, adding there would also be limited tracking of the stocks to its declared final destination.

“Efforts to mitigate the illegal cigarette trade can be strengthened by allowing a single point of entry, which will free up resources for monitoring and enforcement and allow for effective interceptions.

“Ultimately, curtailing the supply of illegal cigarettes into the country will require stricter enforcement to curb supply and stronger policies of deterrence to address demand.”