When ‘black’ is ‘gold’, govt loses billions from illegal tobacco, gambling

KUALA LUMPUR, April 3 – It pays to be “underground” and dealing in illegal activities that are continuously robbing the country of tax revenue. This is evident from two recent reports on the tobacco and gambling industries.

JT International Berhad (JTI Malaysia), a major player in the local tobacco industry, today sent shockwaves as it revealed that there were more illegal cigarettes purchased by Malaysians than legal ones in 2018, and that this scenario is on an upward trend.

The “2018 Illicit Cigarette Study (ICS)” study, conducted by research house Nielsen and commissioned by the Confederation of Malaysian Tobacco Manufacturers (CMTM), showed that 58.9% of all cigarettes sold, which amounts to approximately 12 billion cigarettes, were contraband. That was an increase of over 3.3% over the number of illegal cigarettes sold in 2017.

Malaysia number one for illegal cigarettes

“This cements Malaysia’s position as number one in the world for illegal cigarette sales.

“What’s worse is that the survey shows that illegal cigarette sales recorded in the
period of October to December 2018 was even higher, standing at 61.2%,” JTI managing director Cormac O’Rourke said.

While not blaming the Customs department, JTI said the volume of 12 billion illegal cigarettes being sold in Malaysia shows that more needs to be done, and that just having Customs leading the enforcement at border points is not enough.

“This has enabled cigarette smugglers to manipulate existing policy loopholes and take advantage of porous borders as main smuggling routes into the country.

“A collective multiagency approach is now desperately required to improve the situation,” O’Rourke said.

Country losing RM5 billion, but govt plans to recoup RM1 billion

The JTI boss also pointed to Finance Minister Lim Guan Eng’s Budget 2019 speech last November where the government announced it sought to recoup RM1 billion by addressing illegal cigarette sales.

“With the increase in illegal cigarette sales, the country stands to lose up to RM5 billion in uncollected tax revenues and this is going to continue despite what the government has said,” O’Rourke said.

He called for three measures from the government to control, if not eliminate, this problem.

Firstly, an excise moratorium be in place for the next three years to avoid price shocks that lead to smokers switching to illegal cigarettes.

Second, a ban on transhipment for cigarettes at entry points in Malaysia which has been manipulated to bring illegal cigarettes into the country.

And third, for a single point of entry for any importation of cigarettes into Malaysia.

Double benefit from tougher action on illegal cigarettes

It is left to be seen if the Pakatan Harapan government has the political will and ability to tackle this issue.

Only a concerted effort taking into account the recommendations of the industry players can help both increase the tax revenue from sales of legal cigarettes as well as see a real impact on Malaysians who, unable to have access to contraband cigarettes, will finally look at giving up smoking instead due to cost factors.

This issue is too critical for the government to gamble on the status quo of just raising prices and maintaining limited enforcement. The tax loss of billions of ringgit deprives funds from essential areas that will benefit the people.

Illegal gambling surpasses revenue of licensed operators

Speaking of gamble, the habits of Malaysians in taking a punt on the numbers games run by three operators is also depriving the government of billions in tax revenue.

A March 21 report by The Sun revealed that the “black” 4D and lottery operations is making about 60% more money than all the licenced operators put together.

The six licenced gaming companies in the country – Sports Toto, Magnum 4D, Da Ma Cai, Sabah 88, Sandakan Turf Club and Sarawak Cash Sweep – reportedly earned a total of RM9 billion in annual revenue, while the illegal gaming and lottery industry is believed to have raked up to RM15 billion a year.

The big difference is that licenced operators pay 20% in gaming and corporate tax while the illegal operators pay ZERO! According to the report, the government is losing more than RM3 billion in taxes annually as a result.

Can the PH government really afford to neglect these two major industries from the necessary and effective enforcement that had been lacking for so many years under the previous regime?

If there is no, or little, change made to the relevant laws and enforcement agencies to help in tackling the syndicates as well as individuals who are behind these rackets, then there is no point of talking about wastages in government.

– NMT