It is obviously worrying to the tobacco industry but there are many who would want to government to tax' sin industry' to curb the unhealthy smoking habit.
Now, let us hear the apprehension form the biggest industry player here in Malaysia.
The country's largest cigarette maker, British American Tobacco (Malaysia) Bhd (BAT) , said it would be worried if the government imposed an excise duty increase of more than 5 per cent on the industry this year.
The industry faces a possible excise increase under Budget 2011 as the government looks to increase its revenue and continue its health agenda.
BAT is not opposed to higher excise but wants any increase to be gradual and moderate as, otherwise, it would further fuel illegal trade, managing director William Toh said.
As it stands, the level of illegal trade in Malaysia is at its highest ever. Smuggled and counterfeit cigarettes accounted for 37.5 per cent of total cigarette sales last year compared with 14.4 per cent in 2004, Toh said.
Illegal cigarette trade here is the highest in the world, according to a Goldman Sachs global study last year.
"Anything above 5 per cent (in excise duty) would exacerbate the situation," Toh told reporters at a briefing yesterday.
BAT, which sells brands like Dunhill and Pall Mall, commands two-thirds of the cigarette market in Malaysia.
BAT is also lobbying, through the Confederation of Malaysian Tobacco Manufacturers, against a possible new form of tax on the industry.
It was reported last month that cigarette makers would have to pay half-a-sen for every stick sold as cess to the National Kenaf and Tobacco Board, starting this month.
BAT, however, has not received any formal notification on it as yet, Toh said.
"If cess is imposed, it will lead to higher prices for cigarettes and this will further lead to higher price differentials between legal and illegal cigarettes," he remarked.
It is the increasingly high price gap between legal and illegal cigarettes over the years - it stood at RM3.40 last year compared with just 30 sen in 2004 - that has led to a thriving illegal trade, he claimed.
As cigarettes become more expensive, consumers are more likely to gravitate to cheaper illegal products and the government then loses out on potential revenue, he said.
BAT and its rivals here, JT International Bhd and Philip Morris Sdn Bhd, have seen shrinking volumes as a result. The industry sold 14.9 billion sticks last year, about 10.8 per cent less than the previous year.
This year, assuming a moderate 5 per cent excise duty is imposed, like last year, and no cess, volumes will likely fall at a slower rate of between 1.5 per cent and 2 per cent, Toh said.
Well, it all depends on the government now. Collect more from industry sources in tax and lose out to illegal trade. Enforcement must be strict if they want to reduce smuggling. Otherwise, the 'healthy' culture that the government intends to cultivate will come to nought again!
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