Tobacco firms welcome Budget 2021 illegal market curbs
KUALA LUMPUR (Nov 6): Tobacco companies British American Tobacco (M) Bhd (BAT) and Japan Tobacco International Bhd (JTI Malaysia) have welcomed the government’s move to strengthen enforcement against the illegal cigarette trade under Budget 2021.
In a statement, JTI Malaysia Managing Director Cormac O’Rourke welcomed the strengthening of the Multi-Agency Task Force (MATF), with the participation of the Malaysian Anti-Corruption Commission (MACC) and the National Financial Crime Centre (NFCC), saying the task force is the right vehicle to combat the country’s black economy.
“We are particularly pleased with the announcement that cigarette transhipment activities will be limited to certain ports only. We have called on a ban on transhipment of tobacco products time and again, as this loophole has been exploited for years.
“At a time when the country is grappling with high levels of illegal trading, strong and consistent implementation and effective enforcement is key. These are necessary measures to address a key smuggling channel for contraband cigarettes which has resulted in the massive losses to the country over the years,” O’Rourke said.
Meanwhile, BAT managing director Jonathan Reed noted that the measures mentioned in the government’s expenditure plan will help disrupt the supply of illegal cigarettes into the country.
“We are thankful to the finance minister and the Malaysian government for acknowledging the severity of the tobacco black market and taking a bold step towards addressing this issue.
“High taxes on legitimate cigarettes have created a huge demand for cheap, illegal cigarettes. The tobacco black market not only causes the loss of billions of ringgit in uncollected tax, it also funds crime, fuels corruption and drives the youth smoking rate,” Reed said in a statement.
JTI Malaysia’s O’Rourke hailed the government’s move to not increase the excise tax for cigarettes, given that the illegal cigarette industry accounts for 64.5% of total market consumption. Any increase in duties would have negatively impacted the industry and its supply chain, particularly hurting retailers, he said.
Reed said that moving forward, measures put in place to enhance the enforcement against the contraband marker must be accompanied by excise reforms in order to really address Malaysia’s tobacco black market. He noted that the price gap between legal and illegal products is currently too wide, creating a situation that enforcement alone cannot address.
“Ultimately, we believe Malaysian consumers want to do the right thing. If given a viable opportunity to choose a legal alternative at a reasonable price, most would prefer not to put money in the hands of criminals,” said Reed.
O’Rourke agreed, saying: “With the Covid-19 pandemic pressuring all sectors of our economy, we hope the government will fast track the proper enforcement of laws and implementation of various key anti-illicit tobacco measures to better address the situation. Any recovery of lost tax revenues by Putrajaya will also help the government financially.”
In his Budget 2021 address at Parliament earlier today, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz stated that revenue collection strategies will be improved, including addressing the smuggling of high duty goods. He explained that the MATF will be strengthened with the participation of the MACC and NFCC.
Zafrul also announced that the government would implement a freeze on new import licences for cigarettes. The minister also stated that the renewal of imports licences will be tightened through the review of license conditions including the imposition of import quotas.
Additionally, he shared that the government would be limiting the transhipment of cigarettes to dedicated ports, while imposing a tax on cigarettes with drawback facilities for reexport.
The transhipment of cigarettes and the reexport of cigarettes by small boats would also be disallowed, with such products only allowed to be transported in international recognised intermodal containers.
Cigarettes and tobacco products would also be taxable goods in all duty-free Islands and free zones, which have been permitted to conduct the retail sale of duty-free cigarettes.
There will also be a 10% excise duty on devices for all types of electronic and non-electronic cigarettes-inducing vapes. The liquid used in electronic cigarettes will have one excise duty of 40 sen per millilitre.
Shares in BAT finished 0.39% or four sen higher at RM10.22 today, valuing the company at RM2.92 billion. The counter saw 824,100 shares transacted.