This article first appeared in The Edge Financial Daily on October 14, 2019

KUALA LUMPUR: Sin taxes on alcohol and tobacco in the country have reached the level which any hike is unlikely to bring desirable addition to the government’s revenue, according to Finance Minister Lim Guan Eng.

“There are suggestions on raising taxes on tobacco and alcohol, but only these much sin taxes you could have,” he told The Edge Financial Daily yesterday.

Guan Eng said the country’s situation is  like falling into a trap, in which increase in taxes would only encourage smuggling.

“We are in the trap now. The problem is enforcement. A lot needs to be done on enforcement. We are looking at it,” he added.

Malaysia has emerged as the country with the highest level of illicit tobacco incidence in the world, where six out of every 10 cigarettes sold in the country last year were illegal, according to a recent report published by Oxford Economics.

This was followed by Brazil, where illicit cigarettes accounted for half of the overall tobacco industry in 2018, and then Ecuador (41%), Panama (34%) and the United Arab Emirates (33%).

The three largest tobacco companies in Malaysia, which together control 95% of the legal industry’s market share, have been engaging government officials over the years about how detrimental the illicit tobacco trade has been and will be to their business.

The Oxford Economics study commissioned by British American Tobacco in June showed that illicit cigarette consumption levels were hovering between 36% and 37% from 2013 to 2015, but breached the 50% level for the first time in 2016 when it hit 52%.

Since then, illicit tobacco consumption has accounted for more than half of the entire tobacco industry for the last three years, rising further from 56% in 2017 to 59% last year. This equals to around 598 million 20-stick packs.

Commenting on reducing the number of special draw numbers forecast operators (NFOs), the minister explained that the rationale is to curb excessive betting on the numbers games.

“I received lots of complaints about [there being] too many draws and punters. There are already three times a week. Why do you need special draws?” said Guan Eng, noting that curbing social ills is equally important compared to his task to fill the nation’s coffers as a finance minister. He estimated that the foregone revenue is not that significant.

To recap, the finance minister announced in Budget 2020 that the government will reduce the number of special draws for NFOs in 2020 to eight times a year, from the 11 times currently. There were as many as 22 draws before the change of government in May 2018.

Additionally, in order to curb illegal gambling, the government will propose a higher minimum mandatory penalty of RM100,000 for illegal gamblers, with a minimum mandatory jail sentence of six months.

“For illegal operators, a higher minimum mandatory penalty of RM1 million and a 12-month minimum mandatory jail sentence will be imposed,” Guan Eng said.

The special draw was initiated by the government in 1999 to help raise funds to fight the Nipah virus.