DARE: Tobacco tax hikes will fuel Malaysia's illegal cigarette market

KUALA LUMPUR 7 Oct – Datametrics Research and Information Sdn Bhd (DARE), warns the Government that any increase in cigarette excise duties in Budget 2026 without parallel enforcement upgrades will worsen Malaysia’s already dominant illicit cigarette market, currently accounting for 54% percent of total cigarette sales.

According to Pankaj Kumar, Managing Director of DARE, past experience shows that steep tax hikes, while intended to reduce smoking and increase government revenue, can have the opposite effect if enforcement is not strengthened at the same time.

“We’ve seen this before. The 2015 excise hike, which doubled duties from RM0.12 to RM0.40 per stick, triggered a surge in illegal cigarette trade. The illicit share of the market jumped from 33.7% in 2014 to close to 60% by 2016.

“Legal volumes collapsed, but overall consumption barely changed. Smokers simply turned to smuggled products, costing the government billions in lost revenue.”

DARE highlighted similar patterns in Australia, where tobacco taxes were raised by 25% in April 2010, and12.5% annually between 2013 and 2020.

While legal sales dropped, illicit tobacco flourished. The Australian Taxation Office estimated that illicit tobacco made up around 18% of the total market, with more than AUD2.7 billion in duty evaded in 2022-2023.

“These examples demonstrate a consistent pattern. Where tax increases outpace enforcement capacity, the illicit trade expands, governments lose revenue and the public health objective is undermined,” added Pankaj Kumar.

DARE urges policymakers to exercise caution in Budget 2026 and suggests a balanced approach:

• Tie any excise hike to illicit cigarette enforcement initiatives
• Strengthen border controls, track-and-trace systems, and penalties for smuggling
• Ensure transparency in reporting illicit market data

“Simply raising taxes without addressing the parallel illegal market is not a solution. It will only fuel smuggling syndicates, penalise law-abiding retailers and deprive the government of the very revenue it seeks to raise.

"We need a balanced approach that protects both public health and public finance,” Pankaj Kumar concluded. - DagangNews.com