6 out of 10 Packs of Malaysian Cigarettes Smuggled... Fiscal Loss of 1.4 Trillion Won

Corona-induced Distribution Disruptions Surge
High-Tax Alcoholic Beverages Also Fuel the Problem

[Asia Economy Kuala Lumpur Hong Seong-ah, Guest Reporter] Smuggling of cigarettes and alcoholic beverages is rampant in Malaysia. As the proportion distributed underground increases, there are concerns that it is even threatening the national finances.

According to local media such as The Star on the 14th, 63% of the cigarettes sold in Malaysia last year were estimated to be smuggled. This means that 6 out of every 10 packs sold were distributed covertly.

In particular, it is expected that smuggling will become even more rampant this year. This is because the Malaysian government’s Movement Control Order (MCO) implemented after the COVID-19 pandemic caused disruptions in the distribution of alcohol and cigarettes. During the movement restriction period, only essential businesses were allowed to operate, and alcohol and cigarette manufacturing plants were not included, which encouraged illegal transactions.

Mikael, Director of the Retail and Trade Brands Agency (RTBA), said in an interview with the New Straits Times, "With alcohol and cigarette factories closed due to COVID-19, illegal trade is believed to be rampant," adding, "There has been a significant increase in cases of cigarette trading using ride-sharing services and social media platforms."

The situation is similar for alcoholic beverages. As of last year, Malaysia had the second highest excise tax on alcohol in the world, alongside Singapore and following Norway. The high excise tax rate inevitably increases the temptation for smuggling.

Moreover, the suspension of new alcohol sales license registrations since last month due to COVID-19 has further fueled illegal alcohol distribution. Malaysian authorities seized illegal liquor worth 1,127,000 ringgit (approximately 317 million KRW) in Johor in May, and also uncovered illegal alcohol sales worth 5,600,000 ringgit (approximately 1.576 billion KRW) in Klang.

The increase in smuggling is leading to losses in national finances. Last year, the annual national financial loss due to cigarette smuggling was recorded at 5.1 billion ringgit (approximately 1.435 trillion KRW). Including this, the size of Malaysia’s underground economy reached 300 billion ringgit (approximately 83 trillion KRW) in the same year. This is about 21% of Malaysia’s Gross Domestic Product (GDP). Tax revenue is not keeping pace with economic growth. The Malaysian government’s planned tax revenue target for this year is about 154 billion ringgit (approximately 43.35 trillion KRW), but the taxes collected by the government last year amounted to only 147 billion ringgit (approximately 41.38 trillion KRW).

This content was produced with the assistance of AI translation services.