By TEE LIN SAY and EUGENE MAHALINGAM
KUALA
LUMPUR: Contraband cigarettes have become a major problem in Malaysia
because of high cigarette prices, low penalties and lax enforcement.
The Government is losing approximately RM1.5bil in revenue annually,
disclosed industry players.
Furthermore,
the illegal market has spawned a major industry which gives syndicates
operating smuggling networks up to RM1bil in profits yearly. It also
defeats the Government’s move to raise prices to discourage smoking
among the young.
A Star Probe shows that illegal
cigarettes are quite easily obtained at outlets in Malaysia. Most of
those who smoke them appear to come from the lower income bracket as
these cigarettes are available for as low as RM2.50 for a pack of 20.
Legitimate cigarettes retail for between RM6.40 and RM9.30 for a pack
of 20.
The illicit market now accounts for more than one out of
three cigarettes sold. Some 38.7% of the industry by volume is now
illicit, up from 27.5% in 2008, according to The Illicit Cigarette
Study conducted by Taylor Nelson Soffres commissioned by a major
cigarette manufacturer.
This
means that out of the 23.3 billion cigarettes consumed in 2009,
approximately nine billion sticks were illicit. The legal market has
also shrunk by 10% compared with 2008 to an estimated 13.8 billion.
In
the region, Malaysia is one of the countries with the highest taxes for
cigarettes after Singapore. Illicit syndicates are taking advantage of
this and making a cool RM1bil a year from the Government’s stance to
stamp out smoking.
Industry observers said the huge demand for
exceptionally low-priced cigarettes was largely due to high taxes
imposed by the Government over the last few years, as well as the
minimal punishment for offenders and easy accessibility of illicit
cigarettes.
“Excessively high taxation is a major contributor to
the rise in the trade of illicit cigarettes in Malaysia,” said JT
International Bhd director of corporate affairs and communications
Shareen Rahmat.
She added that this was compounded by
insufficient deterrence – penalties meted out for the sale and
consumption of illicit cigarettes were very minimal in Malaysia.
“As this trade is so profitable, smugglers are willing to risk being caught just to get a share of the pie.
“Present
enforcement is just not strict enough to deter the smugglers,” said
British American Tobacco Malaysia Bhd (BAT) finance director Steve Rush.
BAT
head of business development Azlan Ibrahim added that most of the
smuggling was from neighbouring countries such as Thailand, Indonesia,
Cambodia and China.
The sophisticated network of the syndicates makes it very easy for smuggling to take place.
“Right
now, these illicits enter Malaysia through overland routes via Thailand
and Singapore, sea routes from Indonesia, and smuggling through ports,”
said Azlan.
Royal Malaysian Customs Department deputy
director-general (compliance and enforcement) Datuk Mohamed Khalid
Yusuf said that Customs was doing its best to stop the sale of illicit
cigarettes.
“We know who they are and where the hotspots are.
Apart from having our own intelligence, we also have a network of
informers whom we pay for undercover intelligence purposes,” he said.
While
Customs continues to raid retailers, the focus is mainly on the ports
and coastlines, which are the points of entry for the illicits.
“Nowadays it is more of fraud (disguising cigarettes as other merchandise) than direct smuggling of illicits.
“We
have invested in high-tech tools and X-ray equipment to detect the
illicits when they come in. Our officers too need more capacity
building to match these sophisticated smugglers,” Khalid said, adding
that there was no one best strategy that fitted all.
“Yes, I
believe more can be done. We have to pool all our resources and be
situational and versatile to outsmart the smugglers,” he added.
As
of Dec 31, the Customs seized 490 million illegal cigarette sticks
valued at RM64.55mil, a decrease compared with 2008 when 495 million
sticks worth RM58.2mil were confiscated.
Unpaid duties amounted to RM233.29mil, almost the same as 2008’s RM233.7mil.
Worldwide, illegal cigarettes make up some 5.5% or 303 billion sticks of global consumption.
The illicit cigarettes in Malaysia comprise kretek and white cigarettes.
The
three biggest manufacturers in Malaysia are BAT, Japan Tobacco
International (JTI) and Philip Morris International (PMI), which
together control over 90% of the legal market share.
Source
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