Negative multiplier effect if cigarettes, tobacco products in duty-free areas taxed

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KUALA LUMPUR (Nov 20): The proposed excise tax on all cigarettes and tobacco products at duty-free areas will cause a negative multiplier effect on the Malaysian economy, said duty-free retailing group The ZON Duty Free (The ZON).

In his recent Budget 2021 speech, Finance Minister Tengku Datuk Seri Zafrul Aziz said taxes would be imposed on cigarettes and tobacco products in all duty-free islands and any free zones that have been permitted retail sales of duty-free cigarettes.

In a statement today, the firm, which is a member of Atlan Holdings Bhd Group of Companies, said the move by the government not only impacts retailers' revenue but may also discourage tourists from visiting what will be semi duty-free zones, threaten jobs that are needed by predominantly B40 communities, and de-incentivise foreign and local investments into these areas.

The ZON director Ong Bok Siong said duty-free retailers were already struggling very hard to cope with the severe drop in tourism and travel activities during the ongoing Covid-19 pandemic.

"In fact, duty-free sales are expected to decrease by US$29.4 billion in the Asia Pacific region this year, according to market research firm Globaldata.

“Clearly, it is the wrong time to impose excise duty on cigarettes and tobacco products in duty-free areas. These products are very popular with international and domestic travellers and form a significant part of a duty-free retailer’s revenue,” he said.

Ong said if the industry’s revenue stream is pressured even further, some duty-free retailers may be forced to reduce its workforce or close altogether.

“Surely this outcome is misaligned with the federal government’s aim to reinvigorate the economy that has been hurt by the crisis,

“The focus now should be to assist businesses to get back on their feet so they can in turn contribute positively to rebuilding our economy,” Ong said.