SHAH ALAM - The decline in illicit cigarettes suggests that a moderate and scheduled sin tax hike would discourage consumers from turning to illicit cigarettes and prevent government revenue loss, according to economists.
Sunway University economics Professor Dr Yeah Kim Leng described that a schedule of gradual tax increases would align with rising income and inflation, making it easier for low-income hardcore smokers to adjust without turning to illicit cigarettes.
"Raising prices progressively could motivate some to quit smoking to save money," he told Sinar Daily.
Sin Tax in the 2025 Budget
When asked about the potential for a hike in sin tax in the 2025 budget, Yeah said that all taxes were under review.
"Taxes that haven't been adjusted for a long time, like the sin tax, may be prioritised, especially if the budget emphasises healthcare under the Madani Economy Framework," he said.
He also commented on the government's decision to refrain from increasing the excise tax on cigarettes for the past nine years, a strategy aimed at controlling the growth of illicit cigarettes.
"The last significant excise tax hike, amounting to a 43 per cent increase, was nine years ago.
"The rise in income and inflation since then supports the case for an adjustment.
"Too high excise taxes can drive the market underground, leading to increased smuggling and illicit imports. Contrarily, too low prices can increase consumption," he added.
The Malaysian government has suffered significant financial losses due to the illicit cigarette trade, which makes up about 55.3 per cent of the total cigarette market.
This high percentage of illegal cigarettes results in an estimated annual tax revenue loss of around RM5 billion, reducing funding for public services and development projects
Yeah also stressed the importance of strong enforcement, including increasing border patrols, anti-sea smuggling activities, and curbing corruption within government agencies.
He recommended using high-tech equipment like scanners for container screening and enhancing collaboration with tobacco companies and distributors to reduce illicit trade to below 55 per cent.
He suggested studying the success of centralised control centres in other countries for potential adaptation in Malaysia, as these could help mitigate the significant revenue losses caused by illicit cigarette trade.
Meanwhile, Universiti Utara Malaysia economics professor Dr K. Kuperan Viswanathan said the government must maintain vigilant monitoring of illegal cigarette imports.
"Eradicating illegal cigarette trade completely is challenging, but it can be managed to a tolerable level.
"A gradual increase in cigarette taxes is advisable.
"This approach can generate additional revenue for poverty alleviation programmes," he added.
Following the removal of e-cigarettes and vapes from the Poisons List, the government imposed a 40 sen per millilitre excise tax on these products from April 2023.
The current excise tax on cigarettes stands at 40 sen per stick, up from 28 sen before the November 2015 increase.