PROPOSALS TO TACKLE ILLICIT TRADE
Ban sale of duty-free cigarettes on islands and review current tax, says Ideas
BAN the sale of duty-free cigarettes in Langkawi, Labuan and Tioman, stop raising excise duties on tobacco and review the current tax.
These are recommendations by the Institute for Democracy and Economic Affairs (Ideas) to help combat illicit tobacco trade based on experiences from other countries.
The government should ban the sale of duty-free cigarettes for a limited time until enforcement capacities have been im- proved, said Ideas in a report titled “Countering Illicit Trade: Lessons from Abroad” released yesterday.
“The previous government had admitted that the three tax-free islands were a source for illicit tobacco, but proposals to ban sales of duty-free tobacco had failed in favour of restrictions,” said Ideas.
It was reported that illicit tobacco made up 62 per cent of the market share in Malaysia due the huge price gap between contraband and legal cigarettes.
“As we approach the tabling of the 2019 Budget, it is crucial that the government steps up efforts to counter the illicit trade which is draining it of much needed revenue and harms legitimate businesses,” said Ideas chief executive officer Ali Salman.
Ideas recommended that penalties against illicit cigarette traders be raised to RM100,000.
“The current penalties do not act as a sufficient deterrent and need to be increased, in line with proposals from the Customs.”
He said illicit tobacco remained a major problem. The government should also hold back from increasing cigarette prices and review the existing tax structure as well as tighten enforcement on smuggling routes.
“Multiple tax hikes on cigarettes have led to drastic price increases which then led to a stark increase in illicit tobacco trade.
“The government should not raise the prices further. It should instead review the existing taxation regime, and look to other countries such as Canada and Pakistan that have successfully reduced illicit cigarette trade after reforming excise duties.”
Ideas also called for the setting up of an illicit trade task force chaired by the finance minister and an introduction of bank guarantee schemes for transhipments.
“A major route for illicit products is transshipments. The government should require transshipments to place a bank guarantee until delivery at final destination can be confirmed,” it said.
To reduce the impact on legitimate trade, this should be conducted on a risk-based approach, targeting only high-risk products while operators with good track records are excluded, it added.