Jail sentence threat unlikely to have much effect on Malaysia’s illicit trade

Malaysia’s extension of illicit cigarette trade penalties to cover buyers is not expected to have any material impact on the earnings of local tobacco companies, according to a story in The Star quoting analysts and industry observers.

An Affin Investment Bank research bank had Malaysia’s illicit cigarette trade accounting for 34.5 percent of the total market as at the end of 2013, compared with 20 percent in 2002.

“The key culprit for the rampant illegal activities was due to an increase in cigarette prices over the years as a result of higher excise duties,” said Affin, which is maintaining its underweight rating on the tobacco sector for now.

“We leave our forecast unchanged for now pending updates from management of the tobacco companies relating to the success of this initiative.”

Amendments to the Control of Tobacco Product Regulations 2004, which took effect on Jan. 1, stipulate that it is not only illegal to sell cigarettes in packs that do not carry government health warnings and pictures; it is also illegal to buy them.

Under the amendments gazetted last June, the buyer, just like the seller, could face a maximum fine of MYR10,000, two years in jail or both.

The RHB Research Institute was quoted as saying that while the amendments amounted to a positive attempt to curb the illicit cigarette trade, the problem would continue given the lack of enforcement of regulations.

The institute said that the recent 14–17 percent increase in licit cigarette prices was not helping the situation.

It forecast that the industry’s licit sales would contract by 10 percent during 2014.