Illegal cigarette trade rampant; 12 billion sticks sold in 2019

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Kuala Lumpur, February 19, 2020 JT International Berhad (JTI Malaysia) today lauded the establishment of a multi-agency task force set up to tackle the illegal trading in cigarette and alcohol, calling it an opportunity to address a problem that has surpassed crisis levels and continues to deprive the country of tax revenues, while exposing glaring concerns over the porousness of entry points into Malaysia. 

At a press conference today, JTI Malaysia, which is a member of the Japan Tobacco Group, said the illegal cigarette trade has reached a staggering 62.3% for the full year 2019 compared to 58.9% in 2018, an increase of 3.4 percentage points year-on-year. Based on this, it is estimated that about 12.2 billion sticks of contraband cigarettes were sold and consumed in Malaysia in 2019.

JTI Malaysia released the results from the Illicit Cigarette Study conducted by research house Nielsen and commissioned by the Confederation of Malaysian Tobacco Manufacturers (CMTM), which highlighted that the illegal cigarette incidence recorded during Wave 3, for the period of October to December 2019 declined 2.1 percentage points from 64.6% in Wave 2 (June – August 2019) to 62.5%. 

JTI Malaysia Managing Director Cormac O’Rourke said, “The illegal cigarette trade in Malaysia continues to be rampant and has escalated substantially over the last 4 years with at least 6 in every 10 cigarettes consumed locally being illicit. The year-on-year increase recorded now necessitates strong and decisive action on policy and enforcement to address the situation. We have called for the establishment of a body to coordinate enforcement and policy matters involving various law enforcement and regulatory agencies throughout 2019, so we view positively the recent establishment of a Multi-Agency Task Force (MATF) by the Ministry of Finance and led by the Royal Malaysian Customs to comprehensively combat illegal smuggling and illegal trading in Malaysia.” 

Multi-Agency Approach Strengthens Efforts 

O’Rourke said the multi-agency approach taken by the Government, involving ministries and agencies such as Ministry of Health, Ministry of Domestic Trade and Consumer Affairs and Royal Malaysian Police Force, should strengthen the efforts to comprehensively combat illegal trading. Together with the legitimate tobacco industry in Malaysia, this task force will be responsible for creating a strategic, coordinated, and collaborative framework to tackle the illegal cigarette crisis. 

O’Rourke said the effective implementation of this task force is of the utmost importance. “We strongly believe that Key Performance Indicators (KPIs) must be employed by enforcement agencies for this task force to be held accountable and so that progress can be measured, in particular revenue collection where RM5 billion is lost annually from illegal cigarette trading alone.” 

“The setting up of the MATF presents an opportunity for Government to finally get to grips with and eradicate illegal cigarette trading for once and for all. Achieving this will make significant inroads into Government efforts in stamping out the black economy which is estimated at 21% of GDP or approximately RM300 billion per year”. 

Among the strategies that JTI Malaysia have put forward in the past year includes a ban or restriction of cigarette transhipment through Malaysia and a continued moratorium on excise tax increases for the next 2 years. 

Stepping Up Efforts on Seizures and Enforcement is Key 

O’Rourke highlighted that the amount of contraband seizures in 2019 indicates that a greater effort is required to fortify the borders and entry points. Recent reports from Royal Malaysian Customs indicated the department seized 466.16 million sticks of illegal cigarettes in 2019; a decline from the 843.89 million sticks seized in 2018, while over the same period illegal trade continued to increase by approximately 6 per cent. “The number of illegal cigarettes seized in 2019 was significantly lower when compared to the estimated 12.2 billion illegal cigarettes sold in the country. There is no doubt that the proliferation of illegal trading over the years has a significant cost on the legal industry and jobs, while also contributing to the black economy in the country”. 

Lack of Regulatory and Policy Coordination Threatens Anti-Smuggling Efforts 

O’Rourke meanwhile cautioned that any effort to address illegal cigarette trading must be accompanied by cohesive Cabinet-level policy making that supports efforts of the MATF, not negates them. He stressed that the Ministry of Health’s (MOH) plans to amend the existing Control of Tobacco Products Regulations 2004 (CTPR) and to increase the Minimum Cigarette Price (MCP) from RM10 to RM15 as an example of how inconsistent policy-making can derail the MATF efforts and worsen illegal cigarette sales. 

Calling any regulatory measure that runs counter to addressing the real problems as “reckless”, O’Rourke also said: “New regulatory measures by the MOH will only nullify the efforts of the task force as untaxed and unregulated illegal cigarettes will be provided with significant competitive advantages over higher-priced legal products. No public health agenda will be served by this proposal as 62% of all cigarettes consumed are already priced well below the current MCP with absolutely no enforcement from the MOH. Policymakers should not lose sight of unintended consequences as they advance the regulatory regime for legal tobacco products”. 

Illegal Vaping Remains an Issue 

O’Rourke also highlighted the continuing threat of illegal vaping which now accounts approximately 10 per cent of the total consumption in the market. He said the Ministry of Health has yet to decide the regulatory approach despite the proliferation of the illegal products in the market, continuing the uncertainty over how the segment develops and impacts illegal trading. 

JTI Malaysia Managing Director Cormac O’Rourke

“Based on a recent consumption pattern study conducted by IPSOS, approximately 30% of illegal vaping users, above the age of 18, are previous non-smokers and are now consuming unregulated products, despite existing controls and restrictions over such products under the Poison Act. This is not to mention the reports of numerous underaged users of these illegal products which should be of serious concern to the Ministry of Health. 

“We again call on MOH to enforce existing laws, hold consultation with the legitimate industry and not take any further regulatory measures against legitimate businesses until such a time as illegal trading is brought under control,” O’Rourke said.