SEPTEMBER 10 — Malaysia’s plan to raise cigarette excise taxes is rooted in good intent: discourage smoking, improve health, and secure revenue. But unless tax hikes are paired with stronger enforcement and smarter regulation of alternatives, we risk fuelling another surge in illicit trade and losing more revenue than we gain.
Malaysia loses about RM5 billion annually to illicit cigarette trade. Illicit products account for over half of all cigarette consumption, with estimates at 54–60 per cent.
When legal prices rise sharply without higher costs on illicit substitutes, smokers — especially low- and middle-income groups — gravitate to untaxed options. Many B40 and even M40 smokers switch to illicit packs or unregulated sources.
This is not anecdotal. Enforcement agencies note more than 80 per cent of illicit packs carry no tax stamp, while 13–14 per cent carry counterfeits. Profit margins for smugglers are huge, risks low, and enforcement patchy. When prices rise faster than enforcement capacity, illicit volumes grow.
Another lever is vaping tax. Malaysia currently charges RM0.40 per millilitre on e-liquids, plus a 10 per cent levy on devices. Between 2021 and mid-2025, vape tax revenue was only RM288 million versus RM15 billion from cigarette excise.
That small share shows two things: vaping remains cheaper, and Malaysia has space to raise vape tax without pushing consumers into unregulated markets. Asean neighbours offer benchmarks: Indonesia, for example, differentiates by product type and uses excise stamps for oversight.
If Malaysia raised vape duty to RM1.00–1.50/ml and tightened device levies or licensing, two outcomes follow: consumers still get a regulated, cheaper non-combustible option, and government captures more revenue instead of losing it to contraband.
The policy prescription is clear:
1. Strengthen enforcement before new hikes: digital tax stamps, better border controls, tougher penalties, and regional coordination.
2. Raise vape taxes to Asean norms while maintaining legal, regulated channels.
3. Reinvest revenue in enforcement: fund customs and policing to fight illicit supply chains.
4. Track consumption shifts: if cigarette prices rise but vape remains accessible, smokers may switch — ideally to regulated products.
If Malaysia ramps up cigarette taxes without fixing enforcement or regulating vaping as a taxed alternative, history suggests another surge in illicit trade, undermining both health and fiscal goals. Policymakers should take note: big tax hikes alone are not enough.
* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
