Price increase will worsen the crisis of illegal cigarette trade

KUALA LUMPUR: The Confederation of Malaysian Tobacco Manufacturers (CMTM) warns that any further price increases will have no impact on smoking rates as smokers will turn to cheap and readily available illegal cigarette segment that is already spiraling out of control.
CMTM said the impression that smokers will quit when cigarettes are too expensive ignores the fact that there are cheaper alternatives in the market. The cigarette black market stands at the new record high of 57.1%, based on the latest Illicit Cigarette Study (ICS) conducted by Nielsen Malaysia in December 2016, and is one of the highest rates in the world.
"This demonstrates that the illegal market is a crisis that cannot be ignored. So what benefit will be derived from increasing the price of cigarettes to RM21.50 when the hundreds of unregulated illegal cigarette brands are sold mostly between RM3.00-RM5.00 and which has already overtaken the regulated segment?" CMTM questioned in its statement yesterday.
Reports released by the Ministry of Health (MOH) indicated that between 2011 to 2015, the number of smokers have actually increased. However, cigarette prices on average during the same period of time increased by more than 30%.
"If cigarette price increases really do have a correlation to smoking cessation, the percentage of smokers would have dropped," said CMTM.
CMTM said in the current economic environment where consumer sentiment remains low, another round of cigarette price increases will only produce a detrimental situation for both the government and the legitimate industry as consumers will switch to cheap illegal alternatives selling as low as RM3.00 per pack.
"When more than one in two packs is illegal and sold that cheaply, increasing legal cigarette prices to RM21.50 will not reduce anything except government revenue collection," said CMTM.
At the same time, illegal cigarette traders continue to reap huge profits from this illegal activity, resulting in losses of RM4 billion in government revenue collection as reported by the Royal Malaysian Customs (RMC) in 2016.
CMTM opined that MOH's number one priority should be combating cheap illegal cigarettes which in the first place do not comply with any of the Ministry's regulations including on minimum price, tar and nicotine limits, graphic health warnings.
"For enforcement to be effective, the market should also not be further destabilised with price increases and as such, a moratorium on cigarette excise is key," said CMTM.