JTI: Tobacco industry still bereft of regulation
Cambodia, Laos and Vietnam have no long-term tobacco tax policies, or regular gradual increases, though the Kingdom has made some attempt to monitor public health and revenue implications of the rates, while taking affordability and inflation of tobacco products into consideration. Nonetheless, Cambodia is in the process of developing a tobacco tax roadmap to guide future long-term policy, amid calls from NGOs to increase rates. In 2019, the Kingdom exported more than $30 million worth of tobacco products – $18 million of cigarettes and over $12 million of leaves – and imported in excess of $246 million in products – over $225 million of cigarettes and more than $21 million of leaves, according to Ministry of Commerce data.
From January-June last year, Cambodian tobacco exports were to the tune of more than $3.6 million in cigarettes and over $3.4 million in leaves. While no export statistics are available for last year’s second half, the Kingdom imported some $191 million in tobacco products for the full-year 2020 – over $183.5 million of cigarettes and $7.5 million of leaves. In the ASEAN region, the countries with the lowest tax burdens are Cambodia (25-31.10 per cent) and Laos (18.81 per cent), the Southeast Asia Tobacco Control Alliance (SEATCA) reported earlier this year. JT International (Cambodia) Co Ltd (JTI Cambodia) general manager Roy Manalili discussed the tobacco industry with The Post in a virtual interview.
What are your thoughts on tobacco regulation enforcement in Cambodia?
Regulation of the tobacco industry that follows internationally accepted principles of “Better Regulation” can meet public policy goals and ensure that business interests are respected. Dialogue between governmental authorities and businesses is essential if the regulation of the tobacco industry is to be effective and proportionate.
In Cambodia, we encourage the government to enforce the existing laws covering the tobacco industry to reduce the amount of illegal trade products in the market, which are not complying with the law.
Illegal trade cheats everyone – governments, consumers, legitimate businesses and local communities. It robs governments of tax revenue, consumers do not know what they are smoking, as counterfeit cigarettes are not subject to quality controls, it harms small businesses, and invites organised crime into communities.
Is the industry an attractive investment option?
As a legitimate business, we are a significant revenue generator for the Cambodian government while also creating jobs and supporting communities and local businesses. We encourage the government to enforce the existing laws covering the tobacco industry to reduce the amount of illegal trade products in the market, which are not complying with the law.
The trade of cheap, illegal tobacco robs the government of tax revenue while also undermining public health objectives and efforts to prevent adolescents from smoking. Criminals sell their dodgy
products in back streets and online – they don’t care to whom they sell.
There are four major international companies represented in Cambodia – JTI, British American Tobacco (Cambodia) Ltd, Imperial Brands Plc’s Huotraco International Ltd, and Philip Morris International Inc through Heng Heng Group. There are several other local companies operating here also.
What would a reasonable tobacco tax rate be?
The government applies 20
per cent excise rates and an additional public lighting tax of three per cent.
JTI believes decisions on taxation should reflect the interests and concerns of individual countries. Each country has its own optimal level of tobacco taxes that reflect its unique fiscal, economic and social circumstances, where one-size-fits-all fiscal policies do not work.
Sudden or steep tobacco tax increases are counterproductive – governments risk losing tax revenues as legal products become unaffordable,
leading consumers to shift to cheaper, often illegal products marketed by criminals.
Excessive taxes are not an effective means of combating the illicit cigarette market. Spikes in tobacco taxes in a market like Cambodia would only serve to further develop the illegal trade in cigarettes and create so many unintended consequences.
The correlations between jumps in tobacco taxes and the development of illegal trade are well-known, much to the detriment of governments.
Malaysia is one such example where the uncontrolled proliferation of illegal tobacco in the grip of criminal gangs continues to hinder the lawful activities of the legitimate tobacco industry and ravage government revenues. Six out of every 10 packs sold in Malaysia today are illegal.
What specific factors should the government look into to determine the best fitting rate?
We believe that tobacco taxation, in particular, should carefully consider a country’s priorities and concerns such as government revenue, regional development and employment, income, and consumer purchasing power with its impact on the affordability of tobacco products, illegal trade, and regional sensitivities such as cross-border shopping.
Therefore, a predictable and progressive increase would be right for the operating environment in Cambodia.
How do you see the industry evolving in the upcoming years?
We envisage that the government will move to enforce against any product that is illegally traded. Illegal trade cannot be dealt with in isolation.
We help governments, regulators, police, and customs crackdown on illegal trade by sharing information and developing specific programmes. We do this to protect our business and our brands.
Like many other consumer goods companies, JTI has invested heavily in building its brands over many years. They are JTI’s most precious assets and we want to protect them for the future.