Malaysia has lost MYR5.13 billion ($1.23 billion) in potential tax revenue to the black market for cigarettes, reports The Malaysian Reserve, citing Oxford Economics.
With illicit stock accounting for approximately 59 percent of domestic cigarette consumption, Malaysia’s black tobacco market is proportionally one of the world’s largest. The country ranks ahead of Brazil, where illicit cigarettes account for 50 percent of the market; Ecuador (41 percent), Panama (34 percent) and the United Arab Emirates (33 percent).
The main factor behind the rampant illegal cigarette trade is the high cost of legal cigarettes in Malaysia, according to Pete Collings, director of economic impact consulting for Europe and Middle East at Oxford Economics.
“On the demand side, what is feeding into whether a consumer opts for illicit or illegal cigarettes is going to be around affordability,” he told The Malaysian Reserve.
“(Cigarette) duties are pushing prices for legitimate brands far higher than the illegal prices. Therefore, it is far more affordable to go for an illegal cigarette.”
According to the report, a 20-stick pack of cigarettes retails at an average of MYR15 compared with MYR4.50 for illicit brands.
The cost of legal cigarette brands further comprised 7.1 percent of the mean household daily income in 2016 and 17.3 percent for the mean daily income for households in the bottom 40 percent income group.
This is against 2 percent and 4.8 percent for illicit cigarette brands in the respective categories, according to the report.
Legal cigarettes are also significantly more expensive in Malaysia than in they are in most neighboring countries.
The report was commissioned by the British American Tobacco.