Malaysia - illicit cigarettes, BAT wants government to slow excise duty increases..

September 14, 2009 - The Government will lose about RM1.5bil in the form of unpaid taxes each year based on the increasing illicit cigarette trade reaching a record 36.7% of the country’s total cigarette industry. Currently, one of three cigarette packs in Malaysia is illegal contraband compared with one of four less than a year ago. (Peninsular Malaysia - one of three cigarette packs is either contraband or fake..)

British American Tobacco (Malaysia) Bhd (BAT) is pleading to the Government to look into the matter and take necessary action to combat the crime. Managing director Jack Bowles said legal cigarette manufacturers had lost a significant 11% in volume during the first half of this year to illegal operators.

Jack Bowles: “It is also proven that cigarette excise duty increases have direct correlation to the swelling in illegal cigarette trade which could clearly be seen in Hong Kong and Singapore. Thus, in order not to further fuel the crime in Malaysia, we hope that the Government will seriously consider implementing a moderate and gradual excise regime. The industry has seen excise increases every year since 2002 and the excise increases in the last two years make up 50% of the increases from 2002 to 2006.”

He said it appeared that the annual and large excise increases had caused the tobacco industry to reach a tipping point, accelarating the growth of smuggled cigarettes at the expense of the legal cigarette industry with no change in overall consumption.

It is also estimated that more than US$40bil in tax revenue is lost by governments worldwide each year due to the illegal cigarette trade.

Bowles said almost all illegal cigarettes in Malaysia were contraband or smuggled and fortunately there were no counterfeit cigarettes in the local market. “But, the large profits for organised crime syndicates come from contraband cigarettes because they exploit the large price difference compared with legal cigarettes.”

The pressing situation would have been far worse if not for the commendable efforts of enforcement agencies, particularly the Royal Malaysian Customs, he said, adding: “Seizures of illegal cigarettes have increased by 76% in the first quarter of this year compared with the same period last year.”

BAT’s revenue in the half year ended June 30 fell 2.5% to RM1.98bil from RM2.03bil in the previous corresponding period. However, its net profit for the period under review increased to RM407.2mil from RM406.6mil previously.

Reference: Govt loses RM1.5bil annual loss because of illicit cigarette trade, theStar online, 9/11/2009.

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