Illegal smokes spike after price hike

Cigarettes smuggled from Indonesia that have the Indonesian excise tax sticker. — Picture by Boo Su-Lyn
Cigarettes smuggled from Indonesia that have the Indonesian excise tax sticker. — Picture by Boo Su-Lyn

KUALA LUMPUR, Nov 3 — Muthusamy hides several boxes of contraband cigarettes beneath the counter of his mamak restaurant, next to the glass case that displays legal smokes costing four times as much.

With the new prices for some British American Tobacco (BAT) Malaysia cigarette brands at RM12 for a pack of 20s, several illegal cigarette sellers like Muthusamy (not his real name) have reported up to a fivefold increase in sales, even as the black market for cigarettes cost Malaysia RM1.9 billion in lost revenue last year.

“Usually, 10 people buy. Now, 50 people buy in a day,” Muthusamy told The Malay Mail Online at his restaurant in Damansara Damai here recently.

He added that his customers, both locals and foreigners residing in the low-cost housing area near Mutiara Damansara, usually purchase between one and three packs at a time.

Muthusamy sells contraband “kretek” (clove) cigarettes like L.A. Lights and Gudang Garam from Indonesia at RM4.50 for a pack of 16 and 12 sticks respectively.

Gudang Garam has 31mg tar and 2.2mg nicotine content per cigarette, much higher than the permitted 20mg tar and 1.5mg nicotine levels respectively.

Luffman cigarettes — which are “illicit white” cigarettes that are manufactured for smuggling purposes — are sold at RM3 for a pack of 20s.

Compared to profits as low as RM1 for a carton (10 packs) of legal cigarettes, Muthusamy pockets RM5 in profit for “illicit whites” or “kretek” cigarettes.

After the “drastic” 14 per cent tobacco excise hike last month that saw a RM1.50 increase in the retail prices of BAT brands like Dunhill and Kent, the tobacco giant warned Putrajaya that the illegal cigarette trade would likely boom as a result.

BAT pointed out that illicit cigarette consumption has increased by 46 per cent since 2002, from 5.4 billion sticks in 2003 to 7.9 billion sticks in 2013, compared to a 30 per cent reduction in legal sales from 20.2 billion sticks in 2003 to 14.1 billion sticks in 2013, based on excise paid volume by Confederation of Malaysian Tobacco Manufacturer members.

“In 2009 alone, there was a sharp 12 per cent increase in illegal cigarette consumption resulting from successive tax increases and weak economic conditions,” BAT Malaysia managing director Stefano Clini told The Malay Mail Online in a recent email interview.

“The key driver of the illegal cigarettes trade is the massive criminal opportunity caused by excise differentials between countries,” he added.

Clini noted that the current tax quantum on a 20-stick pack in Malaysia is 79 per cent, or the minimum price of RM7, compared to 57 per cent (RM2.53) in Indonesia, 45 per cent (RM1.14) in Vietnam, or 20 per cent (RM0.19) in Cambodia.

“Even cigarettes that are fully tax paid in Indonesia are attractive for smuggling to Malaysia,” he said.

The Customs Department told The Malay Mail Online recently that the number of illicit cigarettes it confiscated rose from 522 million sticks in 2009 to 711 million sticks in 2011, before dipping to 511 million sticks in 2012.

“JKDM aims to reduce illegal cigarette consumption to 25 per cent by 2015,” said the Customs Department, using its Malay acronym.

“Among the difficulties that JKDM faces is the large number of (illicit cigarette) outlets and the vast area involved, compared to our limited number of officers,” it added.

The Customs Department also highlighted the long coastlines in Malaysia, which are 2,068km in peninsula Malaysia and 2,607km in Sabah and Sarawak, as well as the country’s various entry points and private jetties that facilitate cigarette smuggling.

Malaysia recorded the second-highest revenue loss totalling RM1.9 billion, as well as the third-highest level of illegal cigarette consumption, at 34.5 per cent, in 2012, out of 11 countries in Asia-Pacific, according to a recent study by Oxford Economics and non-profit researcher International Tax and Investment Centre.

The “Asia-11: Illicit Tobacco Indicator 2012” study looked at tax evasion due to illicit cigarette sales in 11 countries in the Asia-Pacific region, including Australia.

Malaysian smokers, most of whom are men, consumed 23 billion cigarettes last year, out of which 7.9 billion sticks, or 34.5 per cent, were illegal, according to the study.

Legal domestic sales, however, have declined steadily over the years since 2003, reaching 14.6 billion cigarettes in 2012.

The huge tax loss from the illicit cigarette trade is compounded by the burden of smokers on the public healthcare system that is estimated at RM2.9 billion annually, based on a 2007 Universiti Kebangsaan Malaysia (UKM) study that is the latest research on the issue, according to the Health Ministry.

The RM2.9 billion figure is based on the annual treatment cost for three smoking-related diseases — lung cancer, ischemic heart disease and chronic obstructive airway disease — at public hospitals.

The healthcare cost of tobacco consumption also exceeds the tobacco tax revenue by US$231 million (RM734 million), according to the ASEAN Tobacco Tax Report Card 2012 by the Southeast Asia Tobacco Control Alliance (SEATCA).

Malaysia’s healthcare cost of tobacco consumption, based on the three tobacco-related diseases in 2005, was estimated at US$1.3 billion (RM4.1 billion), compared to revenue from tobacco taxes at US$1.1 billion (RM3.5 billion).

“Malaysia is in an unacceptable situation where economic health costs are at least 1.2 times what our government earns from tobacco taxes,” the Health Ministry told The Malay Mail Online in a recent email interview.

“The number (of smokers discharged from government hospitals) has slightly reduced from 2009 to 2011 for cancer cases due to tobacco-related diseases. On the other hand, for both cardiovascular and respiratory cases due to tobacco-related diseases, it is on an increasing trend from 2003 till 2011,” it added.

According to the Health Ministry, 60,593 smokers suffering cancer were discharged from public hospitals in 2011, down from 64,578 in 2009.

Discharged smokers suffering cardiovascular diseases, however, increased from 108,087 in 2000 to 158,788 in 2011; while those with respiratory diseases jumped from 40,704 to 59,826 in the same period.

The Health Ministry also noted that according to the Global Adult Tobacco Survey (GATS) Malaysia 2011, 4.7 million, or 23 per cent, of adults above the age of 15 currently smoke tobacco. This comprises 44 per cent of men and just one per cent of women in the country.

Most of the mamak restaurants and stalls selling illegal cigarettes openly, which were surveyed by The Malay Mail Online in Damansara Damai and Chow Kit, said that sales have generally increased since the price hike of legal smokes, though they refused to divulge specific figures.

A little boy manning a stall in Chow Kit, where prostitutes and sex toy peddlers are frequently seen, sold illegal cigarettes openly, as another boy took cigarette packs out from a large bag and displayed them in a glass case.

A 16-stick pack of L.A. Lights sold for RM4, while contraband Dunhill went for RM7 for a pack of 20s.

The child’s father said curtly, “There’s an increase in sales”, but refused to talk more.

Another illicit cigarette seller at a fruit stall in Chow Kit also said his sales have increased marginally, perhaps by 5 per cent, but that he sold less than one carton a day.

“I’m afraid to let people see. I’m scared to give them,” he said, expressing fear of Customs raids. His cigarettes are hidden behind a piece of cardboard, next to a box of fruits.

In Damansara Damai, where the majority residents are Malays who live alongside Indonesians, Vietnamese and Nigerians, a sundry shop owner, who was cautious in selling illegal cigarettes, said that sales have gone up slightly.

“I can usually sell five cartons on weekends, though sometimes I can’t sell that much,” he said.

Muthusamy, however, is more positive about his sales, crediting the prohibitively high price of legal smokes. “At RM12, who wants to buy? Everything has gone up.”

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