KUALA LUMPUR (July 28): The incidence of illicit cigarettes rose again in the first half of 2022 (1H22), after recording an encouraging decline from a high of 63.8% in 2020 to 57.3% in 2021.

Incidence of the contraband grew to 58.4% in March 2022 before easing to 57.7% in May, according to the latest Illicit Cigarettes Study in Malaysia 2015-2022 by Nielsen Inc.

JT International Bhd (JTI Malaysia) general manager Khoo Bee Leng said the tighter policy against transhipments implemented by the finance minister as well as numerous enforcement actions by the Royal Malaysian Police and Royal Malaysian Customs Department have resulted in an encouraging reduction in the incidence of illicit cigarettes in Malaysia.

However, Khoo attributed the uptrend of the illegal trade observed in 1H22 to the smuggling of illicit cigarettes via ship-to-ship transfer outside Malaysia’s territorial waters.

The smuggling activity happens when vessels that supply the contraband hover outside of Malaysia's waters and deactivate their automatic identification system (AIS) that automatically transmits vessel identity, speed and GPS location, causing these ships to "disappear" when off-loading illicit cigarettes onto receiving vessels, she explained.

“The fight against illicit cigarettes requires sustained enforcement and sensible policies. It is possible that the incidence may increase as the unintended consequence of policies that ignore the market realities," she added.

To stop illicit trade, Khoo has called for the government to establish a specialised task force comprising marine police, the Malaysian Maritime Enforcement Agency and Royal Malaysian Navy with coordinated operations.

In addition, she also recommended intercepting all vessels, both supply and receiving vessels that switched off their AIS transponders.

Lastly, she also recommended enforced receiving vessels, especially licensed boats larger than 25 feet, must install AIS transponders and keep them switched on while at sea.

Khoo said the large price difference between illicit cigarettes and legal duty-paid products also entices consumers to opt for the contraband.

For example, the legitimate industry is required by law to sell a pack of legal duty-paid cigarettes at not less than RM12 per pack. In contrast, illicit cigarettes are sold at between RM4 to RM6 per pack, Khoo noted.

“Malaysians are recovering from the impact of the pandemic, and their household budgets have been hit hard with rising cost of living. Any increase in the excise rate, which will definitely lead to an increase in the price of legal cigarettes, will cause more consumers to switch to illicit cigarettes,” she added.

Commenting on the Tobacco Product and Smoking Control Bill 2022, which prohibits the smoking of cigarettes among persons born in 2007 and after, Khoo said JTI does not support this Bill as she foresees that the act will push more people to go after illicit cigarettes.

“We do not support this Bill because it is not appropriate [as] it [is] discriminating people based on the year above [born in 2007 onwards]. This [act] will push more and more people to get into illicit [cigarettes]. Prohibition is never the answer,” she said.  

According to JTI Malaysia, the government should refrain from enacting policies that risk worsening the incidence of illegal cigarettes in the market.

Hence, it urged the government to remain committed to tackling the problem through well-considered policies and sustained enforcement actions.

Meanwhile, Khoo suggested the government could optimise revenue collection by plugging leakages via collecting excise duties from vape liquids. There was no enforcement despite the government having approved such excise duty during Budget 2022, she added.

It is estimated that the government will lose an RM750 million revenue collection for 2022 from the uncollected excise duty from vape liquids.