PETALING JAYA: The hike in the excise duty on tobacco products in Malaysia is expected to help alleviate pressure on the Government’s revenue amid the current weak oil price environment.
According to some economists, while taxes on tobacco products in general only account for less than 2% of total Government revenue, the excise duty hike of 42.9% could turn out to be one of the more effective avenues to boost its coffers. At least one economist expects the excise duty collection from the tobacco, cigarettes and cigars segment to increase by up to RM400mil next year due to the recently announced hike.
“The series of price hikes from transportation such as toll and rail services to sin products such as cigarettes as announced in recent weeks show that the Government is determined to find ways to boost its revenue,” an economist from a local bank-backed research said.
“It is understandable, as the Government is under a lot of pressure to reduce its fiscal deficit even as the weak prices of crude oil, which is a major contributor to its revenue, continue to put pressure on its income,” he told StarBiz.
The Government on Tuesday was reported to have increased the excise duty on cigarettes by 12 sen per stick, or 42.9%, to 40 sen per stick. This consequently led to tobacco distributors such as British American Tobacco (M) Bhd announcing cigarette price hikes of around RM3.20 per box, or about 23%-26%, with effect from yesterday to compensate for the higher excise duty.
“The excise duty hike on tobacco products will definitely contribute to the Government’s coffers,” AmResearch economist Patricia Oh said.
“The last excise duty hike of three sen per stick in November 2014 is expected to increase revenue collection from the tobacco, cigarettes and cigars segment by RM96mil this year; based on this assumption, the excise duty hike of 12 sen per stick will likely raise collection by about RM400mil for 2016,” she added.
According to the Government’s revenue forecast, excise duty collection from the tobacco, cigarettes and cigars segment is expected to increase to RM3.51bil this year from RM3.42bil in 2014.
Its 2016 Budget, on the other hand, estimated excise duty collection from the tobacco, cigarettes and cigars segment to further increase to RM3.58bil. This figure, however, was announced before the 12 sen per stick hike in excise duty for tobacco products.
Meanwhile, an economist from another local bank opined that the excise duty hike on tobacco products was an unfavourable development for domestic consumers.
“I doubt the hike will have a significant impact on the Government’s revenue, especially if leakages happened in the form of consumers turning to illicit cigarettes,” the economist said.
“This hike in cigarette excise duty – after a series of other price hikes – will put further pressure on consumers. It will especially erode the wealth of the middle to low-income groups, and this will likely slow overall the domestic consumption growth,” he added.
Given the drastic increase in the excise duty hike on tobacco products, economists said the impact on inflation would likely be felt. With cigarette and tobacco products accounting for about 1.7% of the overall consumer price index (CPI) weight, economists expect the increase in cigarette prices to translate into around a 0.4 percentage point increase in the headline CPI growth from this month.