Tobacco firms welcome measures to disrupt illegal cigarette supply

BAT Malaysia managing director Jonathan Reed (pic) said that moving forward, measures to enhance enforcement should be accompanied by excise reforms to really make an impact on the tobacco black market.

PETALING JAYA: Under Budget 2021, measures were announced to stop the tobacco black market and disrupt the supply of illegal cigarettes which have resulted in billions in lost tax revenue.

Beginning Jan 1,2021, the government will freeze the issuance of new import licences for cigarettes.

The renewal of import licences for cigarettes will also be tightened, via the review of licence conditions including an import quota.

The transhipment of cigarettes will be limited to selected ports.

Taxes will be imposed on the importation of cigarettes with drawback facilities for re-export.

The transhipment of cigarettes and re-export of cigarettes by small boats including “kumpit” will be disallowed, and instead be allowed only in ISO containers.

Cigarettes and tobacco products will be taxed in all duty-free islands and any free zones that have been permitted retail sale of duty free cigarettes.

Also, there will be an excise duty of 10% on all electronic and non-electronic cigarette devices including vape.

An excise duty of 40 sen per millilitre will be imposed on liquids used in electronic cigarettes.

British American Tobacco (M) Bhd has welcomed the new measures, and pointed out that Malaysia has the top spot in the world for illegal cigarettes, which take up 65% of the total market.

In July, Japan Tobacco International Bhd (JTI Malaysia) had estimated that the loss in tax revenue annually for the tobacco industry is around RM5bil.

BAT Malaysia managing director Jonathan Reed said that moving forward, measures to enhance enforcement should be accompanied by excise reforms to really make an impact on the tobacco black market.

“The price gap between legal and illegal products is currently far too wide, creating a situation that enforcement alone cannot address.”

Meanwhile, JTI Malaysia also viewed the new measures positively.

“We welcome the strengthening of the Multi-Agency Task Force with the participation of the Malaysian Anti-Corruption Commission and the National Financial Crime Centre. We believe this task force is the right vehicle to combatting the black economy, ” said JTI Malaysia managing director Cormac O’ Rourke.

He also praised the government’s announcement that cigarette transhipment activities will be limited to certain ports only.

“We have called on a ban on transhipment of tobacco products time and again as this loophole has been exploited for years, ” said O’ Rourke.

There was also no hike in the excise tax for cigarettes, which he welcomed.

“An increase would have resulted in driving more consumers to illegal cigarettes and illegal vaping, further impacting negatively the industry and supply chain, in particular the retailers who are already reeling from the current economic crisis, ” he said.

For its third quarter ended Sept 30,2020, BAT Malaysia’s net profit dropped 23% to RM63.74mil from RM83.13mil a year ago, due to the Covid-19 pandemic and the growing tobacco black market.

The group’s duty-free business operations remained impacted by Covid-19 travel restrictions that continued in the third quarter.

Revenue in the third quarter increased to RM627.52mil from RM584.34mil a year ago.

For the nine months under review, BAT Malaysia’s net profit dropped to RM169.12mil from RM248mil a year ago, while revenue declined to RM1.66bil from RM1.85bil.

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