This article first appeared in The Edge Financial Daily on October 17, 2018

KUALA LUMPUR: The uncertainty faced by tobacco companies may soon be over, after Health Minister Datuk Seri Dr Dzulkefly Ahmad remarked yesterday that retail prices for all cigarette brands will be increased in three weeks.

Dzulkefly was quoted by Bernama as saying in Parliament that the prices of tobacco products, including cigarettes, have to be increased following the nationwide shift to the sales and services tax (SST) on Sept 1.

“The recent implementation of the SST will cause the prices for all types of tobacco products, including cigarettes, to be increased,” he said in the report. On Oct 5, Dzulkefly reportedly said the potential price increases would be RM1.30 for imported cigarettes and 90 sen for local cigarettes.

Since the beginning of last month, the ministry of health (MoH) had been silent on the minimum level of increase in retail selling prices of cigarettes, leaving tobacco companies in a limbo. The MoH administers tobacco price approvals under the Control of Tobacco Products Regulation 2004.

After cigarette prices of the Big Three tobacco manufacturers were raised following the SST’s implementation, British American Tobacco (Malaysia) Bhd (BAT Malaysia) and JT International Bhd (JTI Malaysia) rolled back their prices three weeks later in the absence of price guidance from the ministry.

According to a BAT Malaysia spokesman, the company has been invited this week to meet with the MoH on the price increases.

“Pending the outcome of that meeting, we hope to get a better guidance that is aligned to our interpretation, so the price volatility brought on by the different interpretations of the SST will cease soon and allow industry players in Malaysia to navigate this complexity and minimise the impact on consumers,” the spokesman told The Edge Financial Daily.

When contacted, JTI Malaysia managing director Cormac O’Rourke said the company, over the past month, had written multiple times to the MoH seeking clarity on the interpretation of the proposed price increases.

“We have highlighted the increase quantum should be the differential between the SST and the goods and services tax (GST) rates given that SST is a direct replacement of the GST,” he said.

“Despite repeated requests for clarification, we have yet to receive any official response.

“We take note of the announcement by the health minister that his ministry is coordinating the new prices of all tobacco products including cigarettes. We await such clarification before taking any further decision on the matter,” O’Rourke added.

The MoH also did not reply to requests from The Edge Financial Daily for comment.

Meanwhile, Dzulkefly’s remarks yesterday have given rise to concern over the timing of next month’s announcement for the upcoming hike in retail selling prices of cigarettes as it will coincide with the tabling of Budget 2019 scheduled for Nov 2. Already, the business sector is concerned it will include higher taxes or new taxes as the government seeks more revenue to reduce the national debt.

Tobacco players had previously warned that another increase in excise duty on cigarettes would lead to an increase in illegal cigarette trade, with consequential loss of the industry’s and retailers’ margins, and that it would only reduce the government’s revenue collection.

It has been reported that today, some 60% of the cigarettes sold in Malaysia are illegal due to excessive tax increases and lax enforcement.