Corruption is the “bedrock” of the boom in illegal tobacco trade, which saw Malaysia losing RM5.1 billion in tax revenue last year, former Transparency International Malaysia president Datuk Seri Akhbar Satar says.

“If we stop illegal tobacco trade, we would have more funds for preventive education and healthcare, prevent the growing trend of underage smoking, cut leakages due to corruption and criminal activities and make Malaysia an appealing destination to invest in,” the criminologist tells The Edge in an interview, pointing to previous comments made by the government that excise duties on tobacco are not enough to cover treatment cost for major illnesses caused by smoking.

An Oxford Economics study on “The economics of the illicit tobacco trade in Malaysia”, which was released in June, estimated that the excise duty evaded by the illicit trade in cigarettes reached almost RM4.8 billion last year – far in excess of the RM3 billion estimate the government collected that year.

Akhbar, who is also director of the Institute of Crime and Criminology at HELP University, says the illegal tobacco trade in Malaysia has evolved into a multi-billion ringgit highly-organised eco-system.

“Illegal cigarettes are brought in from multiple entry points including ports, smuggled through our coasts and via unchecked passageways. It is then cleverly distributed throughout the country. For such level of complexity to happen, organised crime is involved and naturally, corruption of those guarding our borders,” he says.

Citing a report by the Malaysian Special Branch, Akhbar says findings reveal that 80% of law enforcers at the border are corrupted.

Still, he is of the view that corruption is everybody’s problem.

On the government’s part, corruption hampers effective policy-making and enforcement.

“For legitimate businesses, corruption is anti-competitive and disruptive as a high level of corruption turns away foreign direct investments and even domestic investments. If six out of 10 tobacco products in the market consist of illegal or illegitimate products, no right-minded legal business will want to remain for long,” Akhbar notes.

British American Tobacco (Malaysia) Bhd and JT International Bhd have ceased their local manufacturing operations in recent years, citing the rise of the illicit trade and subsequent fall in the volumes of legitimate cigarette sales as their reasons for closure.

“For society, corruption brings about a vicious cycle that prevents us from becoming an advance high-income nation,” he adds, noting that an empirical study into corruption needs to be conducted.

He says it is high time for the government to realise that illegal tobacco trade is not a victimless crime.

“Since this black economy gained a foothold, the country’s gross domestic product, economy, public health agenda, reputation and legal employment opportunities have been undermined. Easy access and low cost of illegal cigarettes are likely to encourage underage smoking. In fact, according to Ministry of Health (MOH) data, incidences of youth smoking have increased to 13.8% on the back of easily available illegal cigarettes.

In the Tobacco & E-Cigarettes Survey Amongst Adolescent 2016 conducted by the Institute for Public Health with the MOH, a whopping 78.7% of the respondents tried their first cigarette before they turned 14. Smoking in teens is also rising, because they have access to these low costs of illegal cigarettes.

“Illegal tobacco trade also funds criminal activities where organised crime uses these funds to expand into other areas such as prostitution, illegal gambling and racketeering. Ultimately, this trade propagates corruption in Malaysia,” he adds.

Malaysia has also moved up the ranks in Transparency International’s Corruption Perception Index for 2018 to 61st spot among 180 countries, from 55 out of 176 countries in 2016.

Akhbar says the illegal tobacco trade in Malaysia “has reached an alarming stage” where the most recent data indicates that 59% of Malaysia’s cigarette market in 2018 was illegal, equating to around 1,000 illicit packs of 20 cigarettes were sold each minute.

According to the Oxford Economics study, Malaysia ranked top in terms of illicit cigarette incidence last year, ahead of Brazil (50%), Ecuador (41%), Panama (34%) and the United Arab Emirates (33%).

“Other studies, including the annual Illicit Cigarettes Study, as well as public comments by policymakers and enforcement agencies already reaffirmed this issue. This is a clear and present danger to Malaysia,” says Akhbar.

“Apart from these numbers, one can clearly observe how eateries and petty traders can be seen selling illegal cigarettes openly and blatantly, even in urban areas. In Sabah and Sarawak, for example, illegal cigarettes take up over 80% of the market; nearly everyone you observe will be smoking illegal cigarettes. Consumers have embraced illegal cigarettes as a norm. That’s because originals are too expensive and illegal tobacco products are everywhere,” he adds.

Akhbar notes that legal cigarettes are sold for about RM17 per pack of 20 sticks, while contraband retails at RM4-5 per pack.

The study by Oxford Economics reveals that smuggled contraband, or illicit whites – cigarettes produced legally abroad for the express purpose of selling in the illicit Malaysian market – accounted for almost 44% of all cigarette consumption last year.

Illicit whites smuggled into Malaysia from neighbouring countries, especially Vietnam, Indonesia and the Philippines, are driven by large price differentials, it says.

The study shows that illegal kreteks (tobacco and clove cigarettes) also form a sizeable share (over 10%) of all cigarette consumption, while the proportion of packs with fake tax stamps (nearly 5%) is growing too, particularly after the hikes in excise duty witnessed in late 2015.

While efforts are being made by the government to arrest illegal tobacco trade, Akhbar believes they are “too little and not at all comprehensive”.

“There is no serious political view on this matter. I don’t see the Domestic Trade and Consumer Affairs Ministry or the Royal Malaysian Customs seeking additional funds to fight this problem.

“There is also insufficient number of Customs and border police officers. They also need proper training and technological support to identify smuggled goods. For one thing, the government has to beef up the technology for surveillance functions as most scanners used by law enforcement officers at the border are currently out of date,” Akhbar says, adding that syndicates are willing to go to great lengths to protect their activities and thus, their technology and intelligence can be far more advanced than law enforcers.

“In order to combat illegal tobacco trade, all stakeholders must be involved. First and foremost, Malaysians have to realise and accept that illegal tobacco trade represents a clear and present danger to the country. This scourge impacts society at all levels. As such, all Malaysians should come together to tackle this issue with resolve and alacrity. We can’t just rely on one or two parties, may it be the government or enforcement agencies.

“There are many countries we can learn from because it is not rocket science. We are a democratic country and the will of the people should be channelled to implement laws and policies that empower those to fight corruption effectively and efficiently,” he adds.

He calls on the government to set up a taskforce comprising the various relevant ministries, law enforcement agencies and tobacco companies to resolve the growing illegal tobacco trade issue.

Akhbar also deems as “absurd” claims that tobacco companies are exacerbating the illegal tobacco trade situation in the country in a bid to pressure the government not to raise excise taxes.

“These are claims by irresponsible individuals or parties. I would question their agenda – are they playing down the situation for some reason or are they undermining efforts of our enforcement agencies who are working hard to eradicate this problem?

“The reality is, not only multiple studies by various quarters have shed light on this issue but enforcement agencies and policy makers themselves have acknowledged the problem. The raids and busts clearly provide a glimpse to the nature of this black market trade,” he says.

“It is worth noting that the government has not raised excise since 2015, but the volume of cigarettes sold continue to rise and illegal cigarettes have grown to take majority share of the market. People are not quitting smoking but some are starting to smoke at a younger age with the prevalence of cheap and accessible illegal cigarettes,” he adds.

“Again, one can easily see the depth and breadth of the situation through simple observation. Go to any small eateries and grocery shops and you can see or request for cheaper smokes. Just go to Sabah, Sarawak, Kelantan and Pahang and see what people there are smoking,” says Akhbar.