CPPS Report – Study on the Illicit Trade of Tobacco in Malaysia

The illicit trade of tobacco has undermined the efforts of tobacco control policies by facilitating the uptake of cigarettes amongst youths and adults from lower income households due to its affordability and accessibility. To exacerbate the problem, these products are not subjected to quality and safety controls in accordance with health regulations and legal restrictions such as graphic warnings and banning cigarette sales to minors. Furthermore, the existence of illicit trade results in massive losses to government revenue from excise taxes collected on legal tobacco sales, thus depriving the Ministry of Finance of valuable revenue that remain in the pockets of smugglers.

This study seeks to shed light on the illicit cigarette trade problem and to highlight the structural challenges specific to Malaysia. Weak monitoring at our borders and the numerous entry points through which cigarettes can be smuggled into the country are key factors accounting for the widespread availability of contraband cigarettes. In the meantime, the dearth of data to understand the cigarette consumption behaviour of Malaysian population has obscured the gravity of the issue as much as the current policy framework is uninformed and inadequate due to its lack of coherence and collaborative effort between different government agencies.

These factors combined aggravates the adverse effects to public health associated with smoking illicit cigarettes due to their unlicensed and unregulated ingredients, on top of the known side-effects of smoking cigarettes. Moreover, evading taxes on contraband cigarettes has incurred an estimated loss between RM3bil to RM4bil each year— which is approximately a quarter of the projected annual Sales and Service Tax (SST) collection. This revenue could have been utilised to reduce the burden of long-term public health costs associated with tobacco consumption currently borne by the government.

Accordingly, policy solutions must be able to offer cross-cutting structural reforms for the methods which the Malaysian government is currently using to address the illicit trade of tobacco. The government must establish a robust monitoring and evaluation system on the consumption behaviour of Malaysian smokers. Specific allocation of revenue collected from tobacco products should also be channelled towards prevention of illicit trade so that government programmes are sustainably funded to tackle the illegal cigarette trade. Regional collaboration is also vital to facilitate extensive information sharing on the movement of cigarettes across the region.