LETTER | Billions up in smoke

LETTER | Cigarette tax leakages have reached critical levels, impacting both national revenue and the broader economy.

With an excise duty of RM0.40 per stick, or RM8 per 20-stick pack under the 2022 Excise Duty Order, our country should ideally generate around RM14 billion annually if all cigarettes sold were legal.

However, the 2023 Illicit Cigarettes Study (ICS) reveals that illegal cigarettes now account for 55.6 percent of the market, with an estimated 8.9 billion illicit sticks sold compared to just 7.1 billion legal ones.

These black-market cigarettes are sold at significantly lower prices, from RM4 to RM8 per pack, compared to the minimum legal price of RM12. Consequently, the government is estimated to lose around RM5 billion each year - funds that could otherwise support national development.

In 2016, a tax stamp system was introduced to monitor cigarette supplies and curb tax leakages. However, implementation has shown weaknesses. Authorities have struggled to ensure that issued stamps match the actual quantity reported by manufacturers and distributors. Furthermore, the absence of unique serial numbers on each stamp has made it easier for forgeries to slip through, allowing stamps to be reused or counterfeited.

ICS reports also highlight that 84 percent of illegal cigarettes on the market lack any tax stamps, while the remaining 16 percent bear counterfeit stamps. This underscores major enforcement shortcomings in the current system. The unchecked flow of illegal cigarettes not only drains government revenue but also undermines efforts to control smoking rates by setting higher prices for legal products.

Enforcement challenges are further compounded by cronyism, where those with close connections are seen as manipulating the system to protect illicit businesses. Influential individuals or groups may have enough power to ensure that enforcement remains weak or purely formal. As long as these influences persist, any effort to address cigarette tax leakages will be undermined, with detrimental effects on the national economy.

Beyond tax revenue loss, healthcare costs associated with tobacco use add another burden to the government. In 2020, Malaysia spent approximately RM6.2 billion on treating tobacco-related illnesses, while tobacco tax revenue was only around RM3 billion. This gap represents a significant dual loss, not only in revenue but also in public health expenditure.

To address this issue, several improvements are needed. Introducing tax stamps with unique serial numbers on each cigarette pack, tighter controls by the Customs Department, and a digital verification system for more efficient monitoring are crucial. Measures free from cronyism and driven by a commitment to integrity are equally essential to ensure that every step taken is impactful.

Instead of burdening the rakyat with additional taxes elsewhere, the Madani government should prioritise addressing this significant leakage in cigarette tax revenue. By effectively tackling the issue of illicit cigarettes, the government can potentially recover billions in lost revenue, which would alleviate the need for other taxes. Addressing this problem not only strengthens the economy but also upholds the commitment to fairness and responsibility in managing the country’s finances, benefiting the rakyat directly.

MAHATHIR MOHD RAIS is Perikatan Nasional Federal Territories state secretary.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.