Essentially, the players are lobbying for a more measured tax increase to contain illicit cigarette sales, which according to them rose 42% in 2016 following the large increase in the tax back in November 2015. — Photo: The Star
A GOVERNMENT that wants to reduce national debt and narrow the annual budget deficit will inevitably implement new taxes or raise existing taxes while at the same time cutting expenditures and subsidies. This has begun in Malaysia, where the blanket diesel fuel subsidy was removed in exchange for a more targeted subsidy regime for diesel fuel users.
It is only a matter of time before “sin industries” are targeted in the government’s hunt for more revenue. One of these is the tobacco industry, where the cigarette excise tax has not been raised since November 2015, when there was a 42.8% increase. Hence, BAT Malaysia managing director Nedal Salem’s statement, following the release of the company’s second quarter results, calling for a review of the excise tax.
Tobacco industry players have floated the idea that there should be a predictable and moderate increase in the excise tax rate for cigarettes through what they term a “multi-year tax calendar”. They believe this will reduce price shocks to consumers and at the same time discourage them from illicit cigarettes, which industry players estimate to have caused the government to lose out on RM5bil of revenue annually.
It is understood that there is mounting pressure to raise the excise tax for cigarettes, as after the controversial removal of e-cigarettes and vapes from the Poisons List, the government imposed a 40 sen per millilitre excise tax on these products from April 2023. The current excise tax on cigarettes stands at 40 sen per stick from 28 sen before the November 2015 increase.
The tobacco players are proposing a RM10 increase in the excise rate per 1,000 sticks every two years up to and including fiscal 2031, which works out to a 20 sen increase in the excise tax or a one sen increase per stick every two years. The Galen Centre for Health and Social Policy suggests increasing the excise tax to 77 sen per stick, which it says will net the government a revenue of around RM1.2bil, inclusive of the tax on e-cigarettes and vapes.
It may be that the tobacco players have put out feelers to the government on the cigarette excise tax, perhaps hoping to manage any drastic rise in the tax in Budget 2025. In his call for a review of the tax, Nedal also urged the government to consider addressing the sale of illicit cigarettes in Malaysia, which is about 54.8% of the total industry sales.
Essentially, the players are lobbying for a more measured tax increase to contain illicit cigarette sales, which according to them rose 42% in 2016 following the large increase in the tax back in November 2015.
Perhaps that one sen per stick increase is up for negotiation with the government as the tobacco players seem to be low-balling a public health matter despite the support by the industry for the Control of Smoking Products for Public Health Act 2024.
They have acknowledged that a series of measures taken by the government have been effective in curbing the smuggling and sales of illicit cigarettes, which rose to an all-time high of 63.8% in 2020 but have since dropped to 55.6% last year.
Every little bit helps, but the government should seek a better deal with the tobacco players than what is on offer. The industry’s wish for a gradual increase in the excise tax for cigarettes is workable for them but not for the government, which is facing revenue constraints as it seeks to roll out initiatives to advance the economy and, at the same time, ensure the well-being of citizens, including addressing the rising costs of healthcare.
The cigarette excise tax should be raised, but not by the low quantum offered by the industry, and, at the same time, the government should look into raising the excise tax on e-cigarettes and vape products.
According to the Malaysian Vape Chamber of Commerce in a report, retail value grew to RM3.48bil in 2023 from RM2.27bil in 2019. The number of vape users has also grown by 27% to 1.4 million from 1.1 million in the same period. There are no comparable figures for e-cigarettes.
In order to discourage smuggling and illicit cigarettes from being sold, the current measures must continue to be strictly enforced, and, as recommended by tobacco players, all containers should be scanned, regardless of whether they are for domestic or re-export purposes, with a video feed sent to a control centre for additional oversight as well.
It was also recommended that digital tax codes replace the easily counterfeited tax stamps, as it is estimated that 8.7% of all illicit cigarettes in Malaysia are affixed with counterfeit stamps.
Smoking, in whatever form, will not go away, so it is better to impose limits and taxes, backed by strict enforcement measures, and deal severely with compromised officials, a major concern among tobacco companies.
Hopefully, the tax revenue will be used to fund public healthcare.
This article first appeared in Star Biz7 weekly edition.
