Tag: Malaysia

Taming The Beast

Cormac O’Rourke (Photos courtesy of JTI)
JTI’s Cormac O’Rourke reflects on Malaysia’s struggle against the illicit trade in tobacco products.
By Stefanie Rossel
Malaysia holds a sad record: It’s the market most affected by illicit cigarettes. According to Nielsen, about 12.2 billion sticks of contraband cigarettes were sold and consumed in Malaysia last year, outstripping the number of cigarettes sold legally in the country.
Most illegal cigarettes are brought into the country, which has a total coastline of 4,675 km, through one of its numerous ports or through neighboring Singapore. Declared as nontaxable goods destined for a third country, they are not examined by customs. Instead of being shipped to their destinations, however, the cigarettes are smuggled into Malaysia.
Tobacco Reporter spoke with Cormac O’Rourke, general manager of Japan Tobacco International (JTI) Malaysia, about the strategies required to address the issue.
Tobacco Reporter: Illegal cigarettes accounted for 62.3 percent of the Malaysian cigarette market in 2019, up from 58.9 percent one year previously, according to Nielsen. What’s the situation today?
Cormac O’Rourke: The illegal cigarette trade situation in Malaysia remains critical in 2020. The latest reading of the Illegal Cigarettes Study for June 2020 shows illegal trade at 60.5 percent of the market. Malaysia continues to be No. 1 in the world for illegal cigarette trading, costing the country approximately $1 billion in lost tax revenues annually.
To what extent has the outbreak of Covid-19 and the related “movement control order” (MCO) contributed to the problem?
The MCO period posed several operational issues for the legitimate tobacco industry. In effect, supply of legal products was severely disrupted albeit not fully halted. During this period, the illegal trade syndicates pivoted to the e-commerce channel for sale. Even food delivery services were engaged for distribution. This resulted in a loss of earnings for retailers—[there are] approximately 60,000 throughout Malaysia who rely on the sales of tobacco as a primary source of income. The vacuum was filled by illegal traders where it is estimated that approximately $250 million alone of the annual $1 billion was lost in tax revenue during this short period. Normal supply has since resumed but illicit trade incidence remains stubbornly high at 60.5 percent.
The Malaysian Ministry of Finance has established a multi-agency task force (MATF) to combat illicit cigarette trade. How effective has this initiative been?
The establishment of a MATF in January 2020 led by the Royal Malaysian Customs has paved the way for a public-private sector partnership with a clear term of reference to comprehensively address the illicit trade issue in Malaysia.
Addressing the long-standing illegal trade problem in Malaysia requires a whole of government approach involving ministries and law enforcement agencies. We believe that the MATF with the involvement of the Royal Malaysian Police Force, Ministry of Domestic Trade and Consumer Affairs, [and] Ministry of Finance, among others, can drive enforcement efforts and also ensure sensible regulatory policies are discussed and validated so as to not exacerbate the problem any further. We are optimistic that the current government is now relooking into this issue seriously and [has] recently initiated a meeting in early August to reinstate the MATF with all stakeholders.
This is a national problem costing the country between $1 billion a year in lost tax revenue. It is further costing the small and medium enterprise sector, in particular retailers, billions of ringgits in lost margins. This is damaging not only from a jobs point of view but reputationally for the country as it strives to compete for its fair share of foreign direct investment.

Advertisement
You have named cigarette transshipment and repeated excise tax increases as issues that exacerbate the illicit trade problem. Furthermore, Malaysian smokers have mentioned corruption as the biggest hurdle to controlling illicit cigarette trade in a recent survey by British American Tobacco. What has been done recently to tackle these issues?
Transshipment of illegal cigarettes through Malaysia is estimated to account for up to 50 percent of the illegal volumes coming into the country. This can only be done via the ports through a systematic approach to smuggling and abuse of documentation procedures. The industry has tabled recommendations for the government to ban the practice of transshipment for cigarettes. This, coupled with designating a single point of entry for tobacco products into Malaysia, would curtail the use of this channel for smuggling, remove the uncertainties related to processes and procedures as well as help address any corruption issues that may exist.
We believe that implementing the right policies in addressing this problem has to be the focus while enhancing enforcement effectively by deploying the various enforcement assets and powers available to relevant agencies controlling the borders, ports and even retail outlets. This has to be underpinned by a predictable stable tax environment, thus the call by the industry for an excise increase moratorium for the next two years. This will ensure that affordability will continue to improve while allowing time for the MATF initiatives to take hold.
What should be done in your view to better combat illicit cigarette trade in Malaysia? Is this a problem that can be solved at all?
Stamping out the black economy in Malaysia requires a real concerted effort that can only be addressed by absolute and resolute enforcement, which is why the setting-up for the MATF under the Ministry of Finance earlier this year was a significant step in the right direction and the reestablishment of the MATF a key action point to pursue by the government. Provided there remains a predictable stable taxation environment, targeted policies that close the loopholes currently being exploited, strong political will and stringent enforcement, there is a real chance to bring the situation under better control.
What are the consequences for your business in Malaysia, and what is your outlook on opportunities in that market?
The industry has been forced to make significant adjustments, addressing costs as well as reducing investment to cope with the elevated illegal trade situation. Illegal trading has impacted all parties throughout the legal supply chain.
Given the severity of the situation on the legitimate tobacco industry, retailers and associated enterprises, we call on the government to redouble its efforts to protect jobs and industry for Malaysia. A moratorium on excise tax would be a good start. Furthermore, there is an opportunity to lessen the load on the legitimate industry cashflows by deferring payment of excise and import duties, allowing for duty payment drawbacks for unsold goods as well as a reduction of import duties on ASEAN [Association of Southeast Asian Nations]-sourced products that is currently at 5 percent of cost. Releasing locked cash would ease some financial burden and more importantly would allow the industry to support retailer liquidity as they have been hard hit by the pandemic.
Malaysia also has a problem with illicit vapes, which reportedly made up 10 percent of the total Malaysian market in 2019. What’s the current situation, especially regarding the MCO during the Covid-19 pandemic?
The illegal vaping segment continues to grow unabated and accounts for an estimated 10 percent of the market. Nicotine-based vaping products are technically illegal in Malaysia given the provisions under the Poisons Act 1952 requiring any sale and distribution of nicotine-based products to necessitate a license from the Ministry of Health. However, no license has been issued to date.
The proliferation of vaping products, for which the Ministry of Health has indicated that 90 percent are nicotine-based, has been aided by not only the smuggling of such products that are sold in traditional brick-and-mortar stores [but also by] illegal online sales, most of which are imported and misdeclared as food items. Our position to government has been consistent for an appropriate regulatory framework to be established allowing for the proper introduction of vaping products in the country.
How is the problem of illicit vapor products also being tackled by the MATF and other stakeholders? How effectively has it been done so far?
It remains too early to assess given the recent reestablishment of the MATF, but we are hopeful that with proper policies in place and stronger coordinated enforcement, there will be a positive impact on the situation. We estimated that if illegal cigarette trading is reduced by 50 percent, the country would benefit from at least a $500 million increase in tax revenues. The efficiency of the MATF and its constituent agencies should be assessed based on the revenues that it can recover from reducing illegal trade, and we are confident that proper key performance indicators will be put in place toward that end.
Could you please describe the state of tobacco harm reduction in Malaysia?
The reduced-risk products segment is still in its infancy in Malaysia. While open tank vaping products have been around for the past several years, albeit illegally, heated-tobacco products have only been introduced in the past two years. Nevertheless, there remains an absence of a proper regulatory and taxation framework that would cover especially nicotine-based vaping products, which adds to the illegal segment in the country.
Our position has been consistent that a proper regulatory framework needs to be established to allow for the introduction of vaping products in the country. The current situation only allows for an unregulated and illegal industry to flourish.
Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.

October 1, 2020
Malaysians Want Action on Black Market

Photo: Alex Gresbek from Pixabay
Ninety-seven percent of Malaysians would want the government to take immediate action against illicit tobacco sales, reports The New Straits Times, citing a nationwide survey conducted by British American Tobacco (BAT).
The black market for tobacco products causes the government to miss out on more than MYR5 billion ($1.178 billion) in tax collections, according to BAT.
The survey noted that an overwhelming majority (88 percent) of Malaysians believe the tobacco black market was impeding the nation’s Covid-19 economic recovery.
Participants in the survey said the top three factors sustaining the illegal tobacco sales are corruption (38 percent), high excise duties (27 percent) and insufficient resources for enforcement agencies to tackle the issue (19 percent).
BAT Malaysia Managing Director Jonathan Reed said the company welcomed the enthusiastic response to its Stop the Black Market campaign.
Since going live on July 6, 2020, the campaign’s website has had more than 30,000 unique visits.
Tobacco Reporter covered Malaysia’s struggle with illicit trade in its February issue.
August 4, 2020
BAT Asks Malaysians to Tackle Black Market

Photo: BAT
British American Tobacco (BAT) has launched a campaign to draw attention to the problem of illicit cigarette sales in Malaysia, reports The New Straits Times.
The company is inviting Malaysians to participate in a survey and to share their views on a dedicated Facebook page.
Worldwide, Malaysia is now the country most affected by illegal cigarettes, according to Oxford Economics. Nielsen figures suggest that black market accounted for 62 percent of all domestic tobacco sales in 2019.
Illicit cigarette sales cause the government to miss out on an estimated MYR5.3 billion ($1.24 billion) in excise tax revenues each year.
Many Malaysians also believe that youth smoking is linked to cheap illegal cigarettes.
BAT Malaysia managing director Jonathan Reed said the tobacco black market negatively impacts legal businesses and the lives of all Malaysians.
“We applaud the hard work done by law enforcement agencies recently and we hope that these efforts continue to pressure the syndicates operating in this black market,” he said in a statement on July 6.
“However, enforcement alone is not enough to address this issue.”
BAT hopes the surveys will spark a national discussion on how illicit cigarette sales can be stopped.
July 7, 2020
Malaysia: Action Urged Against Illicit Market

Photo: BAT
British American Tobacco (BAT) Malaysia has urged its shareholders to speak up against the illicit trade in cigarettes, which has severely impacted the company’s financial performance in the country, reports the New Straits Times.
BAT Malaysia’s profit from operations declined 24.9 percent to MYR478 million ($111.8 million) for the financial year 2019.
According to BAT Malaysia Managing Director Jonathan Reed, continued growth of the black market has forced the company to aggressively manage its cost base.
“This is not sustainable in the long term,” said Reed at BAT Malaysia’s 59th annual general meeting on June 15. “To effectively stop the black market, more drastic and radical actions are required.”
For 2020, BAT Malaysia said its growth strategy would depend on the recovery of the legal tobacco market, a regulated nicotine landscape, sensible fiscal policies and a resolution to the affordability issues affecting consumers.
“We are ready to invest our resources to continue tackling this issue,” said Reed. “However, full recovery can only happen if we are able to work hand-in-hand with all relevant parties to implement effective structural reforms to manage the extraordinarily high levels of illegal trade.”
June 16, 2020
Throw them in prison
Errant smokers who are issued a RM250 summons for flouting the no-tobacco-smoking rule in Malaysia’s eateries risk paying up to RM10,000 if they are hauled before a court, according to a story in The Star quoting the deputy health minister Dr. Lee Boon Chye.
Smokers who were issued summonses from July 1 would be hit with the maximum RM250 fine, he said.
However, offenders who failed to settle the summons would be hauled before a court.
“The courts can impose a maximum sentence of RM10,000 or two years’ jail,” the deputy minister said when replying a supplementary question during Question and Answer time in the Dewan Rakyat (lower house of Parliament) yesterday.
At the same time, Lee added that the ministry would consider expanding the smoking ban to cover other areas.
“There are some countries which have banned smoking in cities altogether, only allowing it in specific areas,” he said.
Lee assured lawmakers that the Government was committed to implementing the World Health Organization’s Framework Convention on Tobacco Control (FCTC), which Malaysia had ratified in 2005.
However, he said that implementation of the FCTC protocols would be done in stages, including one that would require cigarettes to be sold only in standardized packaging.
“Plain cigarette packaging was proposed by the Health Ministry under the previous administration,” Lee was quoted as saying.
“The proposal was withdrawn following resistance and objections.”
March 19, 2019
Make them pay
Small retailers in Malaysia are said to have been frightened off selling illicit cigarettes by the prospect of a RM100,000 fine, according to a story by Mark Rao for The Malaysian Reserve.
Such stores had been havens for smokers who needed to find cheap cigarettes, but because they are not typically big-money businesses, they have had to think twice.
A Center for Public Policy Studies’ report last year found that well-known illicit brands such as John, Canyon and Luffman were typically hidden by small retailers in opaque boxes and shelves or underneath tables, from where they were sold to customers upon request.
Illicit cigarettes took 64 percent of the market during the fourth quarter of last year, according to a report cited by British American Tobacco (M).
With the Government needing higher revenues to plug a huge financial hole, it promised stricter enforcement against illicit cigarettes and liquor.
The Government is said to be aiming to ‘recover’ about RM1 billion in revenue lost to the black market with its threats of minimum fines of RM100,000 and six months’ in jail for individuals caught dealing with illicit cigarettes and liquor.
The Royal Malaysian Customs Department and other relevant agencies are said to have increased preventive measures since January.
But BAT MD Erik Stoel said the government’s intent was there and important regulatory steps had been taken, but enforcement intensity was still not at the level to make a significant impact.
“It is early days, but we believe it is critical that more focus is put on enforcement and more law enforcement agencies join the party,” he told The Malaysian Reserve.
He said changing the law dealing with illicit cigarette trade cannot be the sole option and urged a unified front between the relevant authorities to tackle the issue.
Meanwhile, the Galen Center for Health and Social Policy CEO Azrul Mohd Khalib said the environment for the black market for cigarettes and tobacco products had to be made hostile, intimidating and prohibitive by the authorities.
“One way to do this is to threaten and enforce severe penalties for small retailers and traders for carrying these products,” he said, citing the termination of business licenses as an effective deterrent.
Cigarette excise duties in Malaysia rose 110 percent from 2011 to November 2015, while the Sales and Services Tax last year resulted in an increase of up to four percent in retail cigarette prices.
March 18, 2019
Funding needs to be tested
The Malaysia Medical Association (MMA) yesterday warned the federal government against working with groups that were ‘stealthily being funded by tobacco companies,’ according to a story by Danial Dzulkifly for The Malay Mail.
In a press statement, MMA said it stood with the World Health Organization (WHO) in urging governments around the world to reject working with the Foundation for a Smoke-Free World (FSFW), which is funded by Phillip Morris International.
The MMA’s president, Dr. Mohamed Namazie Ibrahim, said his organization was calling on the Malaysian government and researchers to reject funding from entities funded by the tobacco industry, such as the FSFW.
“We join the WHO in calling on governments and research institutions to shun any prospect of receiving support or research funding from the tobacco industry as well as from those furthering its interests.
“FSFW is entirely funded by PMI which continues to earn billions at the expense of those who fall prey to tobacco addiction. Our concern is that FSFW effectively operationalizes PMI’s corporate affairs strategy to further PMI’s business interests, which include the promotion of its heated tobacco products, a market which PMI seeks to dominate.”
February 21, 2019
Standard debate
The Malaysian Health Ministry is considering introducing standard packaging for cigarettes, according to a story by Robin Augustin for Free Malaysia Today.
Deputy Health Minister Dr. Lee Boon Chye was said to have told Today that standardized tobacco packaging was part of the World Health Organization’s Framework Convention on Tobacco Control, which Malaysia had become a party to in 2005.
“This has been done in countries like Australia, and the results can be seen,” he said.
Lee acknowledged that there would be opposition to the move from industry players and traders.
“They will cite reasons like the cost of the exercise and how it will affect their business or the intellectual property rights of tobacco companies,” he said.
“We are considering it. There is no timeline set. We have to study the matter and hold talks with stakeholders.”
The Galen Center for Health and Social Policy was said to have told Today it would support a move to introduce standardized tobacco packaging but noted several matters that should be considered firstly.
The think tank’s CEO Azrul Mohd Khalib said these matters included the need for new and specific legislation to ensure the parameters of standardized tobacco packaging were clear on intellectual property rights.
“There are legitimate concerns from businesses regarding how their trademarks would be affected by this move,” he said.
“Their worries and issues need to be fairly heard and addressed.”
Azrul warned that the imposition of standardized tobacco packaging could result in smokers choosing cheaper tobacco products, which could lead to an increase in smoking rates.
“It could increase the preference for illicit tobacco products which would likely be the cheapest on the shelf,” he said, adding that the government must be prepared to implement more enforcement regarding the illicit cigarette market.
February 13, 2019
No cigarette ban
Malaysia has no plans to ban cigarettes, according to a story in The Malay Mail quoting the Deputy Health Minister Dr. Lee Boon Chye.
He was responding to questions about why the government did not ban cigarettes outright if it were serious about curbing smoking.
Lee challenged those posing the question to name a country that had banned cigarettes.
“Even the countries which practice dictatorship and communism could not ban cigarettes,” he said.
“We as a country that practices democracy will not ban cigarettes as we respect the rights of the smokers.
“However, at the same time, we also respect the rights of the non-smokers, that’s why we imposed the smoking ban instead of the cigarette ban,” he told reporters in Taiping.
Lee said that the country’s smoking ban, which had been extended this year to take in outdoor eating areas, was not about revenue.
And he said the regulation was still less strict than that in countries such as Singapore, which permitted smoking only in designated zones.
The Health Ministry banned smoking at all restaurants including within their open-air areas from January 1 but is not penalizing offenders for a six-month grace period.
January 31, 2019
Jail is no answer
A woman has been sentenced to one month in prison by a magistrate’s court in Kota Baru for smoking outside a supermarket two years ago, according to a story in The New Straits Times.
Magistrate Izzudin Mohd Shukri handed down the sentence after Nor Faezah Hamzah, 34, failed to pay a RM1,000 fine imposed on her earlier.
She was charged under a regulation that provides for a fine of up to RM10,000 and or a jail term of up to two years.
An assistant health and environment officer and an assistant public health officer were said to have seen the woman smoking a cigarette at the supermarket’s parking lot. They took the cigarette from her and sent it to the state Chemistry Department where it was analyzed and found to contain tobacco.
The accused, who was unrepresented in court, asked that her term of imprisonment start from the date she was arrested. “I request for a lighter sentence as I have to take care of my 16-year-old child,” she said.
However, prosecution officer Mohd Nor Hussin, from the state Health Department, requested a stiffer penalty to deter the accused and members of the public from committing the same offence.
January 28, 2019