PETALING JAYA: In an effort to curb the smuggling activities of contraband liquors and tobacco that is estimated to cause a revenue loss of RM1bil per annum to the Government, the authorities will impose controls to tighthen the supply chain and distribution of the goods on the country’s three duty-free islands.
The islands are Pulau Langkawi, Pulau Tioman and Labuan.
Customs deputy director-general (enforcement and compliance) Datuk Subromaniam Tholasy when contacted said that the department would be announcing some measures later this month to ensure that the supply chain was tightened.
He said that this was part of the initiatives announced by the Government in January this year during the recaliberated Budget 2016.
“This is part of an initiative to increase revenue and reduce leakages. It will not affect the privileges and benefits enjoyed by the locals and the tourists,” he said, declining to comment further.
The Government, in its recaliberated Budget 2016, had said that it would restructure liquor and cigarette-selling channels and limit them to duty-free outlets licensed by the Royal Malaysian Customs Department.
While the Government will benefit by way of enhancing the tax collection, other firms likely to gain from the move to stop contraband liquor and tobacco in the market are brewers and tobacco players such as Heineken Malaysia Bhd, Carlsberg and JTI Bhd.
These firms complain that they face a double whammy whenever the Government increases the excise duty on liquor and tobacco products. Their grouse is that apart from having to factor in a higher price into their products, they also have to contend with competition from contraband that is not affected by Government duty. One leading tobacco firm, British American Tobacco (M) Bhd (BAT), even shut down its operations here in March this year.
In June, JTI, the country’s second-largest tobacco firm with a market share of 20.7% as of May, said that based on its retail sales estimate, it expects the legal cigarette industry’s volume to decline by 28% in 2016 versus 10.5% in 2015.
BAT and JTI were among the tobacco players who had increased the prices of cigarettes after the excise duty hike. JTI enforced a 23% to 25% hike on its cigarettes.
BAT said falling sales due to high duties, growing competition from illicit cigarettes and thinning margins had prompted it to close its operations here that saw 230 workers being retrenched.
The Confederation of Malaysian Tobacco Manufacturers had said in March that the volume of “legal cigarettes” had been severely impacted, registering a significant decline by about 30% post the unprecedented excise hike. It said excise revenue collection would considerably be lower than before November 2015.
According to reports, the excise duty hike had caused smokers to switch to cheaper contraband brands, resulting in the Government losing some RM4bil in tax collection last year.
To top that, research found that 36.9% of cigarettes sold in the country last year were smuggled, an increase compared to 2014.
The brewers were inevitably not left out in the battle against cheaper contraband.
When the Government changed the tax structure for malt liquor on March 1, Heineken Malaysia or formerly known as Guinness Anchor Bhd modified the prices of its product lines, which led to price hikes of between 8% and 10%.
And right after the Price Control and Anti-Profiteering Act had expired on June 30, both Heineken and Carlsberg hiked up prices by 2% to 2.5% to protect their margins.
In January, it was reported that the Government intended to implement measures to enhance efficiency, and double the compliance and auditing efforts on tax evaders during the Budget 2016 revision.
While it said that it would give special consideration on relaxation for the penalty on taxpayers to encourage them to declare their past years’ income, it also wanted to restructure the selling channel of cigarettes and liquors limited to duty-free outlets licensed by the Customs, apart from narrowing the free duty treatment on imported vehicles on duty-free islands.