Malaysia loses US$775m a year to illicit tobacco trade as market share hits 55pc, study finds

KUALA LUMPUR, Sept 16 — According to a study by the Center for Market Education (CME), Malaysia is losing approximately US$775 million (RM3.2 billion) annually in tax revenue to illicit tobacco trade, with illegal products representing over half of the market. The CME estimates Malaysia's illicit tobacco market share at 55 percent, placing it among the most severe cases among 14 Asia-Pacific economies examined in its latest policy paper.

Pakistan and Australia also have high illicit shares of 54 percent and 60 percent, respectively. The CME's study found that Malaysia and Pakistan lose more than the tax revenue they collect from tobacco, indicating a significant erosion of the legal tax base. Across countries with comparable estimates, governments collect around US$30.98 billion in tobacco taxes but lose an additional US$14.85 billion to illicit trade, resulting in an estimated revenue loss of nearly US$48 for every US$100 collected in tobacco taxes.

Australia experienced the largest estimated loss at US$9.60 billion, followed by Indonesia at US$1.65 billion, Pakistan at US$999 million, Malaysia at US$775 million, and Thailand at US$567 million. Indonesia, despite its low illicit market share of 10.77 percent, recorded the second-highest monetary loss due to the large size of its tobacco market.

The CME argues that illicit tobacco should be addressed as both a customs and law-enforcement issue and a fiscal and tax-policy challenge. The study recommends evidence-based tax increases compatible with enforcement capacity and suggests gradual and predictable excise changes, stronger enforcement against illegal networks, and closer regional cooperation to tackle cross-border illicit supply chains.