Tighten anti-smuggling laws on illicit cigarettes to grow govt revenue, economists urge

22 Sep 2022 04:09pm

Economists urge government not to hike excise duty for the next year as any increase in tax will only benefit the contraband industry, further urging for proper anti-smuggling measures to be put in place. - Bernama pic

SHAH ALAM -Economists say Malaysia faces one of the biggest illicit cigarette trade and called for effective measures, including using big data analytics.

They further urged the government not to hike excise duty for the next 12 months as any increase in tax will only benefit the contraband industry, further urging for proper anti-smuggling measures to be put in place.

Barjoyai Bardai of Universiti Tun Abdul Razak said big data should be used to study the background of smokers who buy illicit cigarettes, their behaviour and the movement of the contraband to draw specific policies and measures.

This is because he said increasing excise duty on cigarettes will not discourage smokers as they are likely to buy easily available illicit cigarettes.

"Malaysia remains one of the countries with the biggest illicit cigarettes problem. Targeted policies and enforcement are needed," he told Sinar Daily.

He said Putrajaya could ask one of the cigarette companies to sponsor the study as it would benefit them to reduce illicit trade.

"We need specific data on smokers, their background, who goes for illicit cigarettes, where are they getting it from.

"Specific information would help government draw targeted policies and enforcement," he said.

He added the study could also list the possible areas illicit cigarettes are brought in and stored, and the data would help them expand information on local officials involved in allowing contraband to come into Malaysian borders.

He said there could be a lot of undertable money involved as these contraband come into the country.

Due to that, increasing excise duty in Budget 2023 may not solve the problem as more smokers are likely to turn to illicit cigarettes while officials continue to allow such products into the borders to make fast bucks.

In 2015, the excise duty was increased by 43 per cent.

This saw a price hike of RM280 to RM400 per 1,000 sticks which led to a decline of 29 per cent of legal volume and an increase of 15.4 per cent of illicit trade with a one per cent increase in excise revenue.

In 2018, after goods and services tax (GST) was introduced the illicit trade further increased by 3.4 per cent while the legal volume declined by 7 per cent.

In Budget 2021, the illicit cigarettes trade had dropped from 63.8 per cent to 57.7 per cent as the excise duties were not increased.

Due to that, he said an increase in excise duty will translate to revenue loss to the government as more people turn to contraband cigarettes.

Retain measures introduced in Budget 2021

Associate Professor Ahmed Razman Latiff of Putra Business School (PBS) says illicit cigarettes remain one of the biggest challenges in the country and Putrajaya should strengthen enforcement before increasing excise duty.

Associate Professor Ahmed Razman Latiff of Putra Business School (PBS) said illicit cigarettes remain one of the biggest challenges in the country and Putrajaya should strengthen enforcement before increasing excise duty.

"The current situation will only get worst if government increases tax as more people will go for cheaper contrabands," he told Sinar Daily.

Razman highlighted two concerns if sin tax for cigarettes was increased in Budget 2023.

He said government already suffers from revenue due to high availability of illegal cigarettes due to the country's porous borders.

"Our agencies do not have resources to monitor these channels," he said.

"Simply by increasing excise duty will not improve government collection," he added.

He urged the government to retain some of the measures introduced in Budget 2021 such as limiting all imports of cigarettes for domestic consumption at dedicated ports authorised for transhipments with the addition of KLIA to import through air.

"The measure of having dedicated ports has been working and they should continue with that," he said

Razman also suggested for all containers that is less than one full container of cigarettes undergoes a second layer of inspection to prevent under-declaration of imported goods.

He further suggested for blockchain technology be used to detect the source of illegal cigarettes, using embedded technology to detect the movement of the product will help reduce fraud.

He said Singapore, Hong Kong and Belgium use blockchain technology to detect fraud risks and the movement of products.

Malaysia, he said still relies on manpower to detect fraud, causing higher chances of corruption to take place.