Cigarette firm JTI: Malaysia lost chance to get RM866m in taxes from e-vapes; time to regulate it

KUALA LUMPUR, Feb 15 — The Malaysian government missed out on the chance to collect RM866 million in taxes last year from liquids used for vaping or e-cigarettes, and should now focus on introducing regulations to start collecting such taxes, tobacco firm JTI Malaysia said today.

Citing the higher volume of smuggled cigarettes in Malaysia in recent years, JTI Malaysia argued that this means any tax hikes on legal cigarettes may not necessarily result in the government collecting more taxes.

Instead, JTI Malaysia general manager Khoo Bee Leng suggested that new taxes on e-vapes would help the government boost its coffers.

“Any tax increase on legal cigarettes will not correspondingly lead to an increase in tax revenue for the government, as cigarettes is now an elastic good due to the availability of alternative products such as e-vape.

“The government should instead focus on collecting tax from previously untapped sources such as e-vapes to achieve its revenue collection targets,” she said.

JTI Malaysia noted that the Malaysian government had in Budget 2022 announced plans to expand tax collection to e-vape liquids containing nicotine by imposing excise taxes at RM1.20 per millilitre.

But JTI Malaysia said the Malaysian government is estimated to have already lost RM866 million in 2022 due to non-collection of excise tax on these nicotine-containing e-vape liquids, and also stated that e-vape liquids that are widely available in Malaysia remain illegal under the Poisons Act 1952.

JTI Malaysia urged for regulations to be introduced to control matters such as the marketing, retailing and ingredients of e-vape liquids, noting that this would help for tax collection: “There is an urgent need for the Ministry of Health to introduce e-vape regulations to govern this segment to support the Government’s revenue collection goals.”

In a chart provided by JTI Malaysia, it cited the Malaysian Vape Chamber of Commerce’s 2020 Study on the Malaysian Vaping Industry and Euromonitor’s forecast of growth in the vaping industry.

In the chart, JTI Malaysia charted the potential revenue for Malaysia from e-vape with an excise tax of RM1.20 per millilitre to be RM751 million (2020), RM791 million (2021), RM866 million (2022), RM939 million (2023), RM1.019 billion (2024), RM1.103 billion (2025), and RM1.192 billion (2026), matched with an upward projected trajectory of the volume of e-vape liquid.

Khoo said Malaysia risks becoming a large market for illegal e-vape, just like how illegal cigarettes are now a big chunk of the market in the country.

She said this is because Malaysia currently has “no control on nicotine levels and ingredients in smuggled e-vapes, and smuggled E-vapes can be sold at a fraction of the price of legal cigarettes by not paying the applicable tax.”

While the incidence of illegal cigarettes in Malaysia dropped from 57.30 per cent in 2021 to 56.60 per cent in 2022, JTI Malaysia noted that the figures show that more than half of the cigarettes in Malaysia are still smuggled in without having to pay taxes.

This is in comparison to legal cigarettes, which the Malaysian government can collect taxes on.

While commending the government on its efforts to control the growth of illegal tobacco, JTI Malaysia urged the Malaysian government to intensify its investigations and enforcement operations against illicit cigarette smugglers.

Among other things, JTI Malaysia noted that the total volume of legal cigarettes in Malaysia had fallen since 2015, as a 43 per cent excise tax hike that year on cigarettes from RM280 to RM400 per thousand sticks had shifted demand among smokers towards smuggled cigarettes which were cheaper.

While the volume of cigarettes had fluctuated over the last few years, a comparison of just the figures given by JTI Malaysia for 2015 and 2022 shows that illegal cigarettes are now dominating the Malaysian market.

In 2015, the volume of legal cigarettes in Malaysia was at 10.52 billion sticks while illegal cigarettes were at 6.15 billion sticks, with both combined coming to a total of 16.67 billion sticks. In 2022, the volume for legal cigarettes was at 7.02 billion sticks while illegal cigarettes were at 9.16 billion sticks, with both combined totalling 16.18 billion sticks.

Similarly, the annual volume of illegal cigarettes in Malaysia for the years 2016 to 2021 also exceeded the volume of legal cigarettes, the figures provided by JTI Malaysia showed.

JTI Malaysia suggested that the total volume of both legal and illegal cigarettes combined in Malaysia has dropped due to the rise of substitutes such as e-vapes.