This article first appeared in The Edge Malaysia Weekly on July 20, 2026 - July 26, 2026

TOBACCO companies are renewing calls for stronger action against Malaysia’s illicit cigarette trade after new data showed the black market expanding again following the introduction of the retail display ban on cigarettes and vaping products in October 2025 and an excise duty increase a month later.

According to market research firm NielsenIQ’s January 2026 Illicit Cigarette Study (ICS), the share of illicit cigarettes rose 2.3 percentage points to 56.7% in January 2026 from 54.4% in November 2025.

The findings, released by JT International Bhd (JTI Malaysia) in April, marked a setback for the legal tobacco industry after five consecutive years of improvement. The illicit cigarette market had declined steadily from a peak of 63.8% in 2020 to 54.4% in 2025.

British American Tobacco (Malaysia) Bhd (BAT Malaysia) (KL:BAT) managing director Nedal Salem says the latest figures show Malaysia’s tobacco black market remains “alarmingly high”.

While acknowledging the government’s efforts to curb smoking prevalence, Salem praises enforcement agencies for making progress against illegal cigarette syndicates and illicit distribution networks in recent years.

However, he says the latest NielsenIQ report indicates that the gains made over the past few years could be reversing.

“The increase in illicit incidence to 56.7% from 54.4% is the first uptick since 2021. This trend results in significant tax leakage of up to RM5 billion annually and affects the livelihood of legitimate businesses,” he tells The Edge.

Beyond the fiscal impact, Salem says illicit cigarettes also pose serious public health risks because they fall outside Malaysia’s regulatory and quality control framework, including the Control of Smoking Products for Public Health Act 2024 (Act 852).

“Illegal products bypass required approvals, compliance checks and quality standards, exposing consumers to unknown contents that may be manufactured in unhygienic conditions,” he says.

The deteriorating market conditions have also weighed heavily on BAT Malaysia’s financial performance. The company, whose brands include Dunhill, Peter Stuyvesant and Rothmans, posted its first quarterly loss since the 1999 merger between Rothmans of Pall Mall (Malaysia) Bhd and Malaysian Tobacco Company Bhd, reporting a net loss of RM35.15 million for the first quarter ended March 31, 2026 (1QFY2026), compared with a net profit of RM23.27 million a year earlier.

Revenue for 1QFY2026 plunged 50.2% year on year (y-o-y) to RM160.3 million from RM322 million while operating expenses rose 74.7% y-o-y to RM64.68 million, mainly due to one-off costs associated with the retail display ban implementation and restructuring exercises. BAT Malaysia is the only listed tobacco company on Bursa Malaysia.

Salem says tackling illicit trade requires more than enforcement alone.

“A key driver remains the wide price gap between legal and illegal cigarettes, as well as the ease of access to illicit products.”

He says Malaysia needs a broader strategy combining demand-reduction policies, stronger public education on the risks of illicit products, support for legitimate retailers, tighter border controls and closer coordination among enforcement agencies.

“BAT Malaysia continues to support evidence-based, balanced policies that advance public health goals while minimising unintended consequences like the tobacco black market growth,” he adds.

Speaking when JTI Malaysia released the January 2026 ICS findings on April 30, managing director Didier Ellena said the rebound demonstrated how quickly the illicit market responds to policy changes that affect cigarette affordability.

He urged the government to consider reinstating an excise duty moratorium on tobacco, citing the resurgence in illicit trade alongside increasingly challenging global economic conditions.

JTI Malaysia, maker of Winston, Camel, Mevius and LD, also warned that illicit syndicates are becoming more sophisticated, pointing to a sharp rise in counterfeit Malaysian tax stamps.

The latest ICS found that cigarettes bearing counterfeit tax stamps accounted for 16% of illicit products in January 2026, nearly double the 8.7% recorded in 2023 and the highest level since the study began.

Ellena cited a recent enforcement operation in the Philippines, where authorities uncovered a large-scale illegal cigarette manufacturing facility containing counterfeit Malaysian tax stamps worth almost RM90 million intended for the Malaysian market.

“This case is particularly concerning because it shows that counterfeit Malaysian tax stamps are being produced and used outside our borders, in large volumes,” he said.

“Illicit operators are no longer just bypassing the system. They are attempting to replicate it.

“It highlights that illicit trade is not only organised and large-scale but also increasingly cross-border, with Malaysia being specifically targeted as a destination market,” he added.

Ellena also noted that only around 30% of Malaysia’s nicotine market is currently subject to high levels of taxation and regulation.

Despite the decline in illicit cigarette incidence over recent years, legal cigarette sales have remained largely flat, suggesting consumers are switching instead to cheaper nicotine alternatives such as vaping products.

JTI Malaysia attributes this trend to lower excise duties on vaping products compared with cigarettes and heated tobacco products, alongside a less comprehensive regulatory framework.

“Based on current consumption trends, aligning vape taxation with heated tobacco products could generate an estimated RM1.75 billion in additional government revenue annually, highlighting both the scale of consumption and the significant fiscal opportunity,” said Ellena.

The current excise duty on vape liquids, regardless of nicotine content, is set at 40 sen per millilitre.

Not surprisingly, public health advocates oppose the tobacco industry’s call for an excise duty freeze.

More than 60 civil society organisations are urging the government to implement a minimum 5% annual increase in tobacco excise duties, arguing that higher taxes remain one of the most effective tools to reduce smoking while boosting government revenue.

The coalition includes the Social & Economic Research Initiative (SERI), Angkatan Belia Islam Malaysia, Federation of Malaysian Business Association, Malaysian Council for Tobacco Control, Yayasan Jantung Malaysia and seven local universities.

SERI chairman Dr Helmy Haja Mydin said consistent tax increases should be viewed as both a public health intervention and a long-term investment.

“Higher tobacco taxes help reduce smoking rates, especially among the youth, while generating additional revenue that can be channelled towards strengthening healthcare services and easing cost-of-living pressures faced by Malaysians,” he said during a press briefing on May 25.

However, Helmy stressed that taxation alone would not solve the problem.

“It is a matter of persistence, continuation and ensuring policies remain up to date. That applies not only to taxation but also to enforcement. We can have the best policies in the world but without supporting our enforcement agencies, implementation becomes much more difficult.

“We also need to look at the issue holistically. No single policy is going to create complete change.”

SERI senior researcher Muhammad Daniel Kittu cited findings from the think tank’s latest nationwide survey of 3,200 Malaysians aged 18 and above, which found that 86% supported the cigarette excise duty increase introduced in November 2025 while more than half believed the increase should have been even larger.

The Budget 2026 measures raised cigarette excise duty by two sen per stick or 40 sen per pack of 20 sticks, cigar duties by RM40 per kilogramme and heated tobacco duties by RM20 per kilogramme of tobacco content.

“We don’t want a repeat of what happened between 2015 and 2025, when tobacco taxes remained unchanged for a decade. We want to see a consistent annual tobacco tax increase of at least 5%,” Muhammad Daniel said. Before the November 2025 hike, the last increase in tobacco excise duty came in 2015, when a 42.8% rise was followed by a surge in the illicit cigarette trade.

He noted that smoking causes between 25,000 and 27,000 deaths per year in Malaysia and imposes an estimated RM18.4 billion economic burden through healthcare costs and labour productivity losses from smoking-related illnesses.

“While vaping products have received significant media attention, conventional cigarette smoking still has a much higher prevalence and must continue to be addressed,” he said.

He also pointed to the 2022 National Health and Morbidity Survey, which found that more than 40% of adolescents had been exposed to second-hand smoke. “This tells us that smoking is not just an issue affecting smokers. Even non-smokers are exposed to its harms.”

Universiti Putra Malaysia associate professor Dr Norashidah Mohamed Nor supported the proposal for annual tax increases but argued the rate should exceed both inflation and economic growth.

“With gross domestic product growth of around 4% to 5% and inflation at about 2%, tobacco taxes should increase by around 10% annually,” she said. “The important thing is that increases happen every year, not once every 10 years. They should also be announced in advance, as Australia does.”

Alternatively, if the government opts for less frequent adjustments, she said the increase should be substantial enough to influence smoking behaviour. “Our studies suggest the optimal increase is around 7% or about 77 sen per cigarette stick. That would raise the price of a premium 20-stick pack from RM18 to about RM26.”

She noted that comparable packs retail for around S$29 (RM92) in Singapore and about A$40 (RM114) in Australia.

Attention is now turning to the Ministry of Health’s proposed vape ban, expected to be tabled this year, which policymakers hope will reduce youth vaping without encouraging users to switch to conventional cigarettes. In September last year, Health Minister Datuk Seri Dr Dzulkefly Ahmad announced plans for a phased ban on e-cigarettes, beginning with a prohibition on open-system vape devices before gradually extending it to all vape products.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.