Sundry shops across Malaysia are losing customers to widespread illegal cigarette sellers, according to the Federation of Sundry Goods Merchants Associations of Malaysia. Its president, Hong Chee Meng, said illicit sales by unlicensed retailers, including outlets run by migrant workers outside the association, are undercutting legitimate family-run businesses that comply with regulations and contribute to government revenue.
With legal cigarette prices ranging from RM12.40 to RM18.40 ($3.10 to $4.60) per pack versus RM3 to RM8 ($0.75 to $2) for illicit products, the price gap is drawing smokers away from compliant retailers. Hong said cigarettes are a key traffic driver for sundry shops, and when customers buy from illegal sellers, shops also lose add-on purchases such as drinks, snacks, and household goods, compounding the impact on small businesses.
British American Tobacco Malaysia Bhd said it may reduce its workforce as part of an operational “optimization” linked to the rollout of a new route-to-market distribution model from July 1. In a filing today (March 31), the company said affected employees would receive statutory and contractual entitlements, including retrenchment benefits where applicable. BAT Malaysia reported 283 employees in its 2024 annual report, but the filing did not specify how many roles could be impacted. The company said the move is intended to align staffing with future operating requirements and follows a shift begun in 2022 toward allowing retailers to place orders through online channels, sales representatives, or call centers, a model it previously said could reduce costs by 20% to 25%.
The announcement comes amid tighter regulation of tobacco products in Malaysia, including a reported plan for a nationwide vape ban starting with disposable products, a 42.8% excise duty increase on tobacco and heated tobacco products under Budget 2026, new pictorial health warnings, and a ban on retail cigarette displays. The Control of Smoking Products for Public Health Act, which took effect in 2024, prohibits the sale of tobacco and vape products to individuals under 18. Shares of BAT Malaysia last traded at RM5.65 ($1.41) at today’s noon break, valuing the company at RM1.61 billion ($403 million).
The Malaysian Micro Businesses Association (MAMBA) highlighted the growing impact of illicit cigarette sales on local small enterprises, following NielsenIQ’s Illicit Cigarettes Study 2025. The study found that illegal cigarettes now account for 54.4% of total cigarette consumption, creating steep competition for micro businesses such as sundry shops, coffee shops, and neighborhood kiosks.
With legal cigarettes costing RM18.40 ($4.60) and illicit ones as low as RM3 ($0.75), MAMBA Secretary-General Alvin Low said the wide price gap encourages consumers to bypass legitimate retailers, undermining micro-enterprises that comply with licensing, taxation, and health regulations. He stressed that this distorted market threatens the broader micro-business ecosystem, which comprises 97.4% of Malaysian businesses, and called for a balanced approach combining enforcement with measures to stabilize the legal market.
The Confederation of Malaysian Tobacco Manufacturers (CMTM) said the latest Illicit Cigarettes Study conducted by NielsenIQ shows illicit cigarette incidence in Malaysia remains high at 54.4% in 2025, a marginal 0.6%-point decline from 2024. CMTM credited enforcement agencies, including the Royal Malaysian Customs Department and the Royal Malaysian Police (PDRM), for intensified border controls and supply chain disruption efforts.
However, the association flagged rising concern over cigarettes bearing fake tax stamps (FTS), with national incidence increasing by 1.7 percentage points year-on-year and wider penetration reported in Johor, Penang, Melaka, Terengganu and Kelantan. The group urged stronger action to remove such products from the market and reaffirmed its commitment to working with authorities to protect regulatory integrity as illicit trade tactics evolve.
Malaysia is moving toward a nationwide vape ban that could leave an estimated 1.4 million adult users in limbo, as policymakers weigh stricter enforcement under the Control of Smoking Products for Public Health Act 2024 and a possible phase-out of open and closed pod systems by 2026. While the government cites concerns over youth uptake and illicit drug-laced liquids, consumer groups and some public health experts warn that prohibition may drive sales underground or push former smokers back to combustible cigarettes, which remain far more prevalent among Malaysia’s 4.8 million smokers.
The Malaysia E-Vaporizers and Tobacco Alternative Association (MEVTA) boasted that numerous “operations and raids” conducted by authorities over the last several weeks at vape retailers across the country found no drugs, hazardous substances, or prohibited products. “In most reported cases, actions were primarily focused on administrative and documentation compliance, while licensed and registered premises were found to have fully cooperated with authorities throughout the inspection process,” MEVTA said.
MEVTA President Mohamad Neezam Talib urged vape and tobacco alternative businesses to continue obtaining proper licenses and comply fully with Malaysian regulations, saying this is essential for consumer safety and industry accountability.
Malaysia’s long-running battle against illicit cigarettes is often framed as an enforcement challenge. Each major seizure reinforces the perception that the problem is being actively contained. New border controls and tougher crackdowns signal resolve.
If this is true, why do illicit cigarettes continue to occupy a significant share of the domestic market? By most estimates, the illicit cigarette trade now costs Malaysia up to RM5 billion ($1.3 billion) annually in lost revenue. This persistence raises an uncomfortable but necessary question: if enforcement has been consistently strengthened, why does the shadow market remain so resilient?
This is not a criticism of enforcement agencies. Malaysia’s customs and security authorities have demonstrated sustained operational commitment, with regular seizures and increasingly targeted interdiction strategies. But enforcement outcomes should ultimately be assessed not by the value of contraband seized, but by whether demand for illegal products is meaningfully reduced over time. If demand remains intact, supply will inevitably find new routes.
Here lies the policy blind spot.
Illicit markets persist when economic incentives favour non-compliance. In the case of cigarettes, a wide and enduring price gap between legal and illegal products continues to shape consumer behaviour. When the legal product becomes significantly less affordable relative illicit alternatives, price-sensitive consumers are pushed toward the illegal market. As long as illegal cigarettes remain readily available at a fraction of the price,enforcement alone cannot fundamentally alter consumption patterns.
International experience reinforces this reality. In Australia, former deputy chief medical officer Dr Nick Coatsworth has warned that the scale of illicit cigarette consumption reflects a policy failure that enforcement alone cannot contain, noting how organised crime has stepped in to meet demand created by market distortions. Independent estimates indicate that illicit tobacco consumption accounted for 28.6 % of total tobacco use in Australia in 2023, a significant increase from earlier years and suggestive of a market that organised criminal networks have moved into as legal prices rise.
The lesson is consistent. When regulation focuses primarily on supply suppression without addressing demand-side dynamics, illicit trade does not disappear. Instead, it becomes more resilient. Risks are priced in, enforcement losses are absorbed, and the market survives because consumer demand remains unchanged.
This highlights a broader policy challenge. Enforcement is essential, but it cannot operate in isolation. When the economic logic of illicit consumption remains unaddressed, enforcement risks becoming reactive rather than corrective — capable of disruption, but not resolution.
None of this suggests that enforcement should be weakened. Strong borders, inter-agency coordination and technology-enabled surveillance remain critical. But enforcement must be complemented by a broader policy conversation that considers regulatory calibration, consumer behaviour and market realities. This includes reassessing whether current tax and pricing structures unintentionally incentivise illegal substitution.
Illicit cigarettes should therefore be recognised not merely as a law enforcement issue, but as a structural policy challenge at the intersection of regulation, taxation and consumer behaviour. Until this is acknowledged, the shadow market will continue to adapt, quietly imposing costs on public revenue and market integrity.
Good policy does not rely solely on punishment. It reduces the incentive to bypass the system in the first place. That is the conversation Malaysia now needs to have.
A Philip Morris executive is urging Malaysia to adopt a harm-reduction approach to nicotine policy rather than banning vapes and e-cigarettes, citing Japan as a model. Naeem Shahab Khan, managing director of Philip Morris Malaysia and Singapore, called Japan’s framework a “pragmatic harm-reduction pathway,” noting the country legally allows heated tobacco products and applies product-specific tax rates. He said Japanese data show cigarette sales fell by about 52% from 2011 to 2023 as smokers shifted to alternatives, arguing that adult nicotine users should have “an equal opportunity to know what is less risky.” Khan warned that “unrealistic” bans could fuel illicit markets, adding that illegal cigarettes already account for about 55% of Malaysia’s sales.
Cigarette smuggling continues to rank among the most serious economic threats facing Malaysia, with the illicit cigarette market estimated to be worth up to RM5 billion ($1.3 billion) annually, underscoring the scale of the shadow economy that remains deeply entrenched in the system.
The Ministry of Finance (MOF) has reported that Malaysia lost approximately RM1.4 billion ($350 million) in unpaid taxes over the past five years, partly due to cigarette smuggling activities. According to MOF data, unpaid duties linked to illicit cigarettes were recorded as follows:
** Jan-Sep 2025
These figures not only reflect significant revenue leakage but also point to the presence of well-organized and resilient smuggling networks capable of adapting to escalating enforcement pressure.
According to security and defense analyst Zaki Salleh, the illicit cigarette problem should be viewed as a strategic threat to national economic security, rather than merely a border enforcement issue.
“National borders are not just geographical lines. They are the frontline of economic defense. As long as weaknesses exist at the borders, the shadow economy will continue to thrive,” he said.
Zaki noted that enforcement efforts by agencies such as the Royal Malaysian Customs Department (JKDM), the Royal Malaysia Police (PDRM) and the Malaysian Anti-Corruption Commission (SPRM) remain critical and deserve recognition. In 2025 alone, JKDM successfully foiled 2,742 attempted cigarette smuggling cases, reflecting a high level of operational intensity and commitment.
However, he stressed that enforcement effectiveness must be assessed against overall market outcomes, not just operational activity.
“These efforts deserve praise, but they remain small when measured against the size of Malaysia’s illicit cigarette market. Without more comprehensive coordination, the impact is unlikely to be sustainable,” he said.
Zaki added that border control approaches can no longer rely solely on conventional methods, as smuggling syndicates have become increasingly sophisticated and operate in a highly coordinated manner.
“Today’s smugglers use technology, modern logistics systems and alternative routes to avoid detection. Their operations span land and waterways, including areas that are difficult to monitor physically,” he said.
Beyond enforcement, Zaki pointed to structural market factors as the core challenge. The significant price gap between legal and illegal cigarettes continues to sustain demand among both consumers and retailers.
“This price difference creates strong economic incentives for illicit cigarettes to keep circulating, especially in a challenging cost-of-living environment. Under such conditions, enforcement alone becomes increasingly difficult to curb demand comprehensively,” he said.
As long as demand remains unaddressed, he cautioned, the shadow market will continue to adapt even as enforcement is intensified.
In this context, Zaki said the government needs to explore broader policy reforms aimed at narrowing the demand gap for illicit cigarettes. He noted that the existing policy framework should be objectively evaluated to ensure a better balance between public health objectives, revenue collection and market realities.
At the same time, he emphasized the importance of fully operationalizing the Border Control and Protection Agency (AKPS) as the central coordinating body for border control, to reduce overlaps and improve inter-agency efficiency.
In addition to coordination, Zaki highlighted the need for more aggressive deployment of technology, including drones, infrared sensors, AI-enabled smart cameras and GPS-based vehicle tracking systems, to strengthen detection capabilities and close persistent border vulnerabilities.
Without a consistent and integrated approach, he warned, the illicit cigarette market will continue to erode national tax revenues and weaken Malaysia’s economic resilience over the long term.
Malaysia’s Health Minister Datuk Seri Dr. Dzulkefly Ahmad touted the nation’s highly discussed vape ban as being “almost here,” and said the ban will be done in stages, initially focusing on open systems. “We face challenges, but we still hope to implement the ban,” he said. “Many compounding factors are at play. But our team of experts is here to work on it.”
Reports indicate that the ban is expected to be implemented in mid-2026.
