Malaysia has reportedly suffered huge tax revenue losses, reaching RM11.5 billion in the past two years due to the spread of illegal tobacco trade activities.
According to a recent report released by the EU-ASEAN Business Council with Euromonitor International, the total losses recorded by Malaysia are the second highest among ASEAN-6 member countries.
What is more worrying, the findings of the report revealed that Malaysia is now at the top of the ASEAN-6 region in terms of market share of illegal cigarettes.
By 2025, an estimated 57 percent of all cigarettes sold in the country will be smuggled and illegal goods.
The report also highlighted the worrying growth trend of the illegal tobacco market across Southeast Asia. Illegal trading syndicates are reported to continue to reap multifold profits year after year, thus ‘robbing’ critical tax revenue that should be flowing into the government’s coffers.
This situation directly explains the continued operation of local businesses that operate legally and law-abidingly. Southeast Asia is currently grappling with economic shockwaves and global supply chain disruptions triggered by the ongoing crisis in West Asia.
The loss of revenue from tobacco taxes is putting a huge strain on the country's budget, as well as drawing sharp attention and criticism from the public. This negative development raises serious questions about the resilience and stability of the Malaysian economy and the surrounding region in facing this challenging phase.
The illicit tobacco trade is now considered a major strategic risk that can derail the economic growth ambitions of the Southeast Asian region.
According to a recent report by the EU-ASEAN Business Council (EU-ABC) and Euromonitor International, this black market is not only growing rapidly, but has also caused ASEAN-6 countries to suffer huge tax revenue losses of 13.1 billion.
The illegal vape market in Malaysia is reported to be at a critical level when it generates RM1.7 billion in 2025, thus recording the highest figure among ASEAN-6 countries. In fact, illegal vape products now control 67 percent of the entire vape market in the country.
This scenario is in line with the regional trend of increasing by 14 percent, while illegal vaping sales jumped 24 percent in the past year.
This high demand is driven by cheaper prices, while the supply aspect is facilitated by the extensive ASEAN trade network and uneven border controls. The illegal product is mostly produced in Indonesia, Cambodia with additional supplies from China.
Illegal smuggling networks exploit Free Trade Zones (FTZs) to avoid customs duties and regulatory inspections. Among the main locations for illegal smuggling are Port Klang, Subic Bay Freeport Zone, Laem Chabang Port and Batam.
