10% sales tax will increase cigarette prices for all BAT brands

-A +A

KUALA LUMPUR (Aug 31): British American Tobacco (Malaysia) Bhd (BAT) said today it is also considering raising prices of its cigarettes to reduce the estimated negative impact on its business performance following the reintroduction of the sales and services tax (SST) tomorrow (Sept 1).

Yesterday, JT International Bhd (JTI Malaysia) announced that it was seeking regulatory approvals to increase the prices for all the cigarette brands that it distributes in Malaysia post-SST.

SST for cigarettes has been gazetted at 10% as of Aug 29, 2018. As a result, BAT said it will be required to increase cigarette prices.

“We are concerned about the impact that the 10% increase of SST will have on the legal cigarette industry given the high incidence of illegal cigarettes (close to 60% of total consumption)," BAT managing director Erik Stoel said in a statement today.

"In light of these high levels of illegal cigarette trade and the persistent pressure on disposable income for the average Malaysian consumer, we have urged the government to re-consider an SST increase on tobacco.

"For the tobacco industry, a sales tax of 10% is higher than the previous 6% goods and services tax (GST)," he added.

Stoel noted that it also implies a double taxation as the SST will be levied inclusive of the high levels of excise, which the tobacco companies currently contribute to the government.

"Unfortunately, this will leave us no other choice, but to consider an increase of the consumer price to reduce the estimated negative impact on our business performance and to compensate for the differential in tax between SST and GST.

"We are concerned that this could further fuel the growth of illegal trade in Malaysia," he added.

Stoel said the legal cigarette industry is under tremendous pressure and has never recovered from the unprecedented excise tax hike of close to 40% in November 2015, which increased cigarette prices to the existing high prices compared to illegal cigarettes.

"As a consequence, it is a known fact that the legal volumes have declined significantly and has made Malaysia a very attractive hunting ground for smugglers and all sorts of criminal elements that should not be associated with a respectable ‘new Malaysia’," he said.

“Since the significant 2015 excise increase, the industry has made conscious efforts not to pass on inflationary cost and other associated costs to adhere to tobacco regulations in Malaysia and to prevent putting further pressure on consumer affordability. Now, as a result of the tax increase, we are required by law to revise our cigarette prices.

“This price increase will result in higher disparity between legal and illegal cigarette prices, in absence of any effective government solutions to curb illegal cigarette trade in Malaysia.

"Like all Malaysians, we were encouraged by our new government’s manifesto, including clear commitments to address illegal cigarettes and corruption in the system. Based upon this promise, we urge the government to put in place rapid and drastic interventions to address this massive national issue,” said Stoel.

Currently, the retail price of legal cigarettes ranges from RM12 to RM17 per 20-stick pack while an illegal cigarette pack goes for RM3.50 and RM4.

According to AC Nielsen’s Illicit Cigarette Study Wave 1 (March-May 2018), 58% of Malaysian smokers consumed illegal cigarettes.