Tobacco firms say industry in major crisis, call for excise freeze

KUALA LUMPUR: Tobacco manufacturers are appealing to the Government to suspend any further excise duty increase to allow the market to stabilise.

In a statement on Friday, the Confederation of Malaysian Tobacco Manufacturers (CMTM) said the industry was facing a major crisis following the “drastic” excise increase of about 40% in November last year to 40 sen per stick.

“Legal industry volumes have been severely impacted, registering a significant decline by approximately 30% post the unprecedented excise increase. This would mean that excise revenue collection would be considerably lower than before November 2015,” it said.

“The industry is already at a tipping point and will not be able to withstand another excise increase this year. In the current operating environment where consumer sentiment is at a low, another round of excise increase will only produce a no-win situation for both the Government and the legitimate industry as consumers will switch to cheap unregulated illegal alternatives.”

CMTM, an industry organisation established by the country’s three major cigarette players, said the steep excise increases against the backdrop of a challenging economic environment and weak consumer sentiment had led to the volume of illegal cigarettes escalating to 45.6% of the market (based on a study by market research firm Nielsen).

“This essentially means that almost one out of every two packs sold in Malaysia is illegal,” it said, adding that the illegal segment was anticipated to overtake the legal segment in Malaysia soon.
.
CMTM said the unprecedented excise increase had disrupted the significant progress that Customs had made in its fight against illegal cigarettes.

“In view of the alarming level of illegal cigarettes in Malaysia, CMTM believes that this issue needs to be made a national priority. The industry urges the Government to consider a moratorium on cigarette excise to allow the market to stabilise and for all law enforcement agencies to support RMC (Royal Malaysian Customs) in the fight against illegal cigarette trade,” it said.

Earlier this month, a CMTM member British American Tobacco (M) Bhd (BAT) announced that it would wind down its factory operations in Petaling Jaya “amidst an increasingly challenging business environment.”

“The high excise environment has ultimately led to the sharp rise in illegal cigarettes and significantly lower legal sales volumes resulting in rising cigarette production costs,” BAT said in the statement to Bursa Malaysia.