DEC 31 — Recently, a member of Parliament, YB Datuk Seri Ahmad Maslan, courted controversy when he proposed halving the current tobacco taxes in a two-year pilot study to curb the black market.
Interestingly, prominent Malaysian tax expert Veerinderjeet Singh, chairman of TRICOR Malaysia as well as the current president of the Malaysian Institute of Accountants, had also recently proposed to allow tobacco companies to introduce a new product that is taxed at a lower rate via a new excise tier.
He further suggested that this would enable a new segment of legal cigarettes to viably compete with illegal cigarettes in terms of pricing.
Policymakers should take these proposals into serious consideration in order to safeguard consumers from the severe and growing threat of illicit trade, especially the tobacco black market.
According to the United Nations Office on Drugs and Crime, illicit trade by transnational organised crime is worth US$870 billion (RM3.5 billion).
This equals the gross domestic product of the Netherlands and comes close to the GDP of Indonesia, a country of 270 million people.
In Malaysia, the tobacco black market alone accounts for more than RM5 billion in tax revenue losses each year. More worrying, it was reported that Euromonitor International, an international research agency, places Malaysia as the world No. 1 for illegal cigarettes incidences where it stands above 60 per cent.
In addition, the proliferation of the tobacco black market causes consumers to be exposed to poorly made and unregulated products.
What’s more, links between the tobacco black market and organised crime are well established. International terrorist groups often use the revenue from this illicit trade to fill their bank accounts, allowing them to continue bringing instability and misery to entire regions.
Ultimately, the risk is exceptionally high for consumers if the black market is allowed to fester.
Unfortunately, in light of the current pandemic, some parties are suggesting increasing indirect taxes, in order to pay for the massive spending governments are committed to. This might backfire and actually reduce the taxable share of the economy due to an increase in black market activities.
Instead, policymakers should embrace moderate tax policies to ensure that tax regimes do not create demand for illicit alternatives.
Proposals to allow legal cigarettes to viably compete with illegal cigarettes in terms of pricing should be considered in a practical, non-emotional manner to help address the issue.
* Luca Bertoletti is Senior European Affairs Manager of Consumer Choice Centre.
** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
