Duty hike too small to deter smokers

PETALING JAYA: Consumer groups and health care organisations are appalled and disappointed with the Government’s marginal excise duty hike on tobacco of 1 sen (or 5.6%) per stick on Oct 1.

Federation of Malaysian Consumer Associations (Fomca) secretary-general Muhammad Shaani Abdullah said the hike was too small to have any effect on smokers.

“The duty increase recently is a good move but it was too small a hike. Usually when the cost of something goes up, people just adapt to the change,” he said when contacted by StarBiz yesterday. “There should be a deterrent increase. Only then would it have an impact on smokers in Malaysia.” Shaani does not see a further hike in excise duty for tobacco to be announced in Budget 2010.

Shaani also called for a serious crackdown on illicit cigarette trade as many legitimate players often used this as an excuse to plead their case against potential tax hikes.

“The (legal cigarette) companies are always using ‘smuggling’ as their ransom weapon to their benefit every time there is a tax hike.

“And we keep accepting this as an excuse. Why aren’t the authorities doing anything to control this?” he said.

Malaysian Medical Association president Dr David Quek said the excuse was “laughable.”

“Of course, we urge our customs department and administration to further enhance their capacities to curb smuggling of duty-free tobacco products. We urge the Government and enforcement agencies to be more alert to smuggling activities and to destroy such contraband with greater care, so that these illicit products cannot make their way to the streets and the underground market,” he said.

Consumers Association of Penang president S.M. Mohamed Idris concurred that the cigarette tax hike was too minimal.

“We are definitely not happy. In Singapore, the price of cigarettes is three times that in Malaysia. This will definitely not deter people from smoking,” he said, adding that cigarette companies needed to be accountable for health care costs for diseases related to smoking.

Citing a research entitled “Health Care Costs of Smoking in Malaysia” that was conducted in 2005 and 2006, he said smoking-related diseases had exhausted some RM3bil during the period, with the bulk of the expenses borne by the Government.

“We need higher excise duties imposed so that fewer youths would pick up smoking. Right now, the amount is too small and we hope there will be another increase at Budget 2010,” Mohamed Idris said.

British American Tobacco Malaysia (BAT Malaysia), which has a 70% share of the domestic legal cigarette market, earlier this week increased the price of its 20-stick packs by 30 sen and its 14-stick packs by 20 sen.

An analyst from a local bank-backed brokerage said the excise duty hike would not have an impact on cigarette companies’ earnings if volumes remained the same.

“If excise duty is 1 sen and the company’s cigarette prices is more than one sen, then there should be no impact on earnings. It’s a very small increase and won’t have an impact. To smokers, cigarettes are practically a necessity, so what is 20 to 30 sen more?” he said, adding that the duty hike was below expectations.

The analyst had forecast an increase of between 1.5 sen and 3 sen.

In an e-mail to StarBiz on Wednesday, BAT Malaysia finance director Steve Rush said increases in tobacco excise duty would encourage the trade of illicit cigarettes.

He said illicit operators did not pay any taxes and could afford to sell at a much lower price, allowing those who could not afford to pay for legal cigarettes to continue smoking.

On the potential impact on earnings and profitability, he said: “BAT Malaysia will only be able to provide information on earnings and profitability through our quarterly financial results announcement.”

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