Approximately 1 out of every 3 packs* of cigarettes sold in Malaysia are smuggled, for which taxes/duties are evaded.
The Government is estimated to lose approximately RM2 billion in taxes annually – funds which could very well be channelled towards the continuous improvement of the Malaysian society.
In Asia, Malaysia has been identified as the third highest among 11 Asian countries in terms of illicit cigarette consumption, according to a report conducted by the International Tax and Investment Centre and Oxford Economics in 2013**.
*Illicit Cigarette Study 2012,Confederation of Malaysian Tobacco Manufacturers
**Asia 11 Illicit Tobacco Indicator 2012, International Tax and Investment Centre and Oxford Economics
What is illegal trade?
Simply put, the illegal cigarettes trade in Malaysia is largely the supply, distribution and sale of smuggled cigarettes, also known as contraband cigarettes, which are smuggled into the country from neighbouring countries without the payment of required taxes and duties and then sold at much lower prices than legitimate tax paid cigarettes.
In most cases, these cigarettes also do not carry the government-mandated labelling requirements such as graphic health warnings, as prescribed by the Ministry of Health.
Counterfeit cigarettes (imitations of cigarettes which resemble branded and legal cigarettes) are negligible in Malaysia.
Why does the illegal cigarette trade occur?
A key factor that contributes to the economic incentive to trade in illegal cigarettes is the high price of legal cigarettes in Malaysia – already the 3rd highest in ASEAN. This is due principally to the high levels of tobacco taxes and duties that have been imposed over the years. High excise increases lead to high cigarette prices.
Illegal cigarettes on the other hand are sold extremely cheap (RM3.00 – RM5.00) and are relatively easy to purchase. This drives a high demand among consumers as a pack of illegal cigarette of 20 sticks is about half the price of a pack of the cheapest legal cigarettes (RM7.00).
The high demand for cheap illegal cigarettes serves as a major incentive for smugglers and retailers to engage in the illegal cigarette trade as the huge economic opportunity it offers far outweighs the risks involved.
Malaysia’s long coastal lines, isolated jetties and long, porous borders also make it easy for crime syndicates to smuggle in illegal cigarettes undetected.