Malaysia suffers combined losses of RM10b yearly to illicit ciggies despite stronger enforcement

 

THE illicit cigarette trade continues to cost Malaysia an estimated RM10 bil annually, comprising approximately RM5 bil in uncollected tax revenue and a further RM5 bil in ongoing public expenditure to fund enforcement efforts to combat this persistent problem.

Advokasi Perusahaan dan Industri (API) was responding to recent remarks by Prime Minister Datuk Seri Anwar Ibrahim, who observed that RM15.5 bil recovered through enforcement actions over the past two years may not fully reflect the true scale of public fund leakages, despite sustained enforcement efforts.

The advocacy group’s managing direcor Datuk Fazli Nordin said that the prime minister’s observation was accurate and highlighted a deeper structural issue.

“Recovery figures demonstrate strong enforcement capability. However, they reflect what is intercepted, not necessarily the full fiscal exposure created by illicit trade,” he noted.

According to Fazli, illicit cigarette consumption alone results in approximately RM5 billion in lost tax revenue each year, while legitimate manufacturers, distributors and retailers continue to face unfair competition from untaxed and unregulated products.

“In addition, federal allocations to the Home Affairs Ministry amounted to RM19 bil in 2024 and RM19.5 bil in 2025,” he remarked.

“We estimate that, out of these allocations, approximately RM5 bil is spent each year to equip and train enforcement agents as well as to carry out counter-trafficking activities.

“We are basically throwing good money after a bad problem year in and year out. Spending RM5 bil if not more to recover RM5 bil doesn’t make sense.

“Beyond fiscal losses, illicit trade creates an uneven playing field for compliant businesses that fulfil their tax and regulatory obligations. It weakens market integrity, distorts pricing structures and undermines confidence in the operating environment.”

According to Fazli, the issue extends beyond border smuggling alone.

“It involves adaptive supply chains, weaknesses in import controls and sustained retail availability. As long as illicit products remain significantly cheaper and widely accessible, enforcement alone will face inherent limitations,” he reckoned.

Fazli further acknowledged the vital role played by the Royal Malaysian Customs Department and other enforcement agencies in safeguarding national revenue and security, saying enforcement agencies deserve recognition for their efforts.

“However, long-term success must ultimately be measured by whether illicit market activity is meaningfully reduced over time, not merely by the value of seizures recorded,” he said.

Fazli went on to reiterate his call for a more demand-focused strategy to tackle illicit trade, stressing that enforcement alone cannot resolve a market imbalance driven by persistent price gaps.

“Addressing the structural drivers of illicit consumption, including pricing distortions, supply chain vulnerabilities and consumer incentives, is critical to restoring fair competition, protecting compliant businesses and strengthening long-term economic competitiveness,” he emphasised. ‒ Focus Malaysia