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The Royal Customs Department seized contraband cigarettes with RM1 billion worth of taxes last year as the authority intensified actions to curb the rise of illicit tobacco products and the government incurs billions in revenue lost.
The high price of cigarettes makes Malaysia a haven for contraband smugglers and retailers who reap huge profits as locals seek cheaper alternatives. Malaysia’s long coastline makes monitoring of the entry of illicit cigarettes more difficult.
Customs DG Datuk Seri Subromaniam Tholasy said the non-duty cigarettes were seized while they were being transported and retail shops. “For the whole of last year, we seized cigarettes with close to RM1 billion in duties and taxes,” he said.
Subromaniam also said recently Selangor’s Customs confiscated contraband liquor and cigarettes valued almost RM500,000 with RM2.25 million of unpaid taxes.
Confederation of Malaysian Tobacco Manufacturers had reported the sector would not be able to withstand a price rise for cigarettes due to the widespread sales of illegal tobacco products.
Malaysia’s legal cigarette market has dwarfed to less than 50% over the last 13 years as illegal cigarette consumption rose to about 57.1%, or 10 billion, out of 18 billion sticks in 2016.
Contraband cigarettes are sold between RM4 and RM5 per pack, almost 400% cheaper compared to RM17 for the famous brands. Cigarette taxes
had increased 110% over the last five years.
It is estimated the government lost billions in tax revenue due to the mushrooming of contraband cigarettes. Excise tax for each stick could be between 28 sen and 40 sen per stick, and with an estimated 10 billion sticks of unpaid taxes, the government is losing a fortune.
Subromaniam said the Customs is taking a different approach to overcome the sale and distribution of contraband cigarettes.
“Previously, we go from shop to shop and check, and conduct raids. But, these methods are time consuming and expensive.
“Now what we are focusing on is stopping the supply of the products to the sellers. Basically, we want to cut the distribution at the roots,” he said, adding that the department was also taking actions against the sale of cigarettes boxes that carried fake “tax paid” stickers.
Subromaniam said the department had suspended the services of 30 foreign agents who had been bringing liquor and cigarettes.
“We found out that they made a false declaration and we have halted their services with immediate effect.
“Show-cause letters will be sent to all 30 foreign agents by next week. So, if they don’t respond accordingly, we will take the necessary action,” he said.
The Finance Ministry in the third quarter of 2017 (3Q17) said indirect tax collection dropped 7.3% to RM14.6 billion, from RM15.7 billion in 3Q16 due to lower excise duties collection, particularly from the locally manufactured cigarettes.
Cigarette companies like British American Tobacco (M) Bhd had ceased its local manufacturing operation, citing high excise environment and the sharp rise of illegal cigarettes.