I BELIEVE that taxes on cigarettes are high enough and do not need to be further increased in the next budget because they will make the illicit trade on tobacco products grow bigger and cause more loss of government revenue due to smuggling activities.
With every increase in import tax and excise duty on cigarettes, the profit incentive for smuggling becomes more attractive. Profits would be big enough for the crime syndicates to pay off all the enforcement units at the various border points and still make them rich. They are so rich that they can even buy titles from the federal and state awards.
It should be noted that Malaysia has more border entry points than other countries like Singapore, Hong Kong and Australia. Although these countries impose higher taxes on cigarettes to make them expensive and unaffordable for smokers, their exposure to smuggling is less than Malaysia because they have fewer land entry points. The Malaysian border is notoriously porous, as Customs officers will tell you. They have been threatened for not cooperating and turning their ears and eyes away from the smuggling taking place right in front of them. The most pious officer can get intimidated when he sees his team mates doing the bidding of the criminals.
We can lecture our officers to fear God but we cannot do that to the Thai, Indonesian and Filipino border units and the pirates and fishing boats from neighbouring countries that roam the seas selling contraband goods.
It was reported that the loss in revenue from the smuggling of cigarettes is estimated at RM4bil. Worse than the revenue loss, the smuggling business often spawns the rise of gangs and gun violence using weapons stolen from police and military depots, or smuggled in across several border points in east and west Malaysia. The huge profits made from smuggling of contraband also leads to money laundering for terrorism and subversive activities and also to support the political friends of the crime syndicate leaders.
Malaysia is on the watch list of international agencies monitoring the flow of illicit funds and their laundering into the financial system. Surely, we do not want to add another distinction of being known as the world’s most notorious smuggling centre for cigarettes.
The duties on gambling, cigarettes as well as on beer and hard liquor are termed as “sin taxes” in Malaysia. I hope the Treasury will not increase the sin taxes again in the coming budget exercise because the high taxes will only result in diverting the trade to smugglers and underground operators, causing unnecessary loss of Federal revenue. This will make it difficult for the Government to reduce the budget deficit and achieve a balanced budget by 2020, which is essential in view of the depressed oil prices and continuing uncertainties in the global economy.
To be pragmatic, the Government may want to review the sin taxes to make them easier to collect and strengthen government revenue. The lower taxes will also give more vitality to the retail, restaurant and tourist businesses, creating more jobs in the economy.
When times are hard, like now, we should put aside the political and religious sensitivities and do what is necessary for the country.
A strong economy benefits all. It certainly helps to reduce the temptation to make money by sinful ways.
TAN SRI MOHD SHERIFF MOHD KASSIM