British American Tobacco (Malaysia) and Japan Tobacco International Bhd in KL have both cited a report that suggests four out of 10 packs of cigarettes are illicit.
In a press releases dated 20 October and 11 November 2010 respectively, the two cigarette firms cited an Illicit Cigarettes Study, commissioned by the Confederation of Malaysian Tobacco Manufacturers, which revealed that the incidence of illicit cigarettes rose to 39.7 per cent during March-May 2010.
Having said that, the firm noted that “enforcement efforts have been undertaken by various Government law enforcement agencies. JTI Malaysia commends the Royal Malaysian Customs (RMC) for its successful enforcement activities todate, and supports the RMC’s continued efforts to prosecute those involved in the illicit cigarettes trade. This is in line with the recent action by the Ministry of Health which successfully prosecuted retailers caught selling illicit cigarettes.”
Of course, the two firms are concerned as their own profits (at the expense of people’s health) are affected.
And if you think these illicit cigarettes are cheap ‘pirated’ or counterfeit brands, think again.
Interestingly, counterfeit cigarettes are not the issue here. The majority of brands being sold illegally are “legitimate” products that are shipped to Malaysia tax-free by crime syndicates that earn vast sums through the trade – at the expense of the government and legitimate domestic manufacturers and importers.
“Probably the global economic slowdown has impacted the proliferation of regional brands coming in by the container load,” opined Ibrahim. “These are not counterfeit cigarettes, they are all tax unpaid, lower-priced brands from Vietnam, Cambodia, Philippines and Indonesia.”
Illicit kretek consumption has gone up significantly over the last five years, reportedly directly related to the number of Indonesian workers in the country, many of whom entered and remain in the country illegally.
“Licit product typically sell for higher prices, illicit brands are lower quality but are significantly lower priced,” said Ibrahim. “Legal products retail between M$6-7. This is what CMTM members’ products typically retail for. The most popular illicit brands are not usually well-known international brands. Illicit brands are much lower priced and therefore attractive to lower-income smokers.”
Adding to the problem is that illicit product is widely available. Illicit retailers are earning good profits, there is a good incentive to participate. The trade is predominantly in the hands of syndicates, and distribution channels are already in place, through massage parlours and so on.. The fine for being convicted of retailing illicit cigarettes currently stands at 10 times the value of uncustomized goods seized. Accordingly, the bulk of supplies held elsewhere than with the retailer. There are retailers being caught and charged in court, but it is widely assumed that the fines are paid by the syndicates who can afford to cover this operational expense and maintain the good will and cooperation of the retailers.
Meanwhile, guess who is:
- making a killing earning profits on illicit cigarettes;
- perhaps collecting money from black marketeers;
- losing massive amounts of tax money by not being able to tax all these illegal ciggies; and
- stumping out even more cash to pay for the health costs of sick smokers when they enter hospital for treatment?
Incidentally, isn’t is also about time that some of the cigarette taxes are channelled to our public health care system to help treat those affected by smoking?