TOBACCO: JTI EXPECTS SALES VOLUME TO STABILISE IN 2020

KUALA LUMPUR, Oct 30 -- Japan Tobacco International Bhd (JTI Malaysia) expects its sales volume to stabilise in the second half of the year, driven by the reopening of the business in stages since the implementation of the conditional movement control order (CMCO). 

Managing director Cormac O’Rourke said however, that the market would still be slightly soft and maybe slightly down versus 2019, but overall improving versus the first half of the year. 

“The second half (of 2020) is certainly stronger compared to the first half of the year, that is, if there are no more extreme further lockdowns (in the country),” he told a media briefing on the latest Illicit Cigarettes Study (ICS) here, today.

For the company, he said, the duty-free portion had essentially been non-existence this year as a result of the non-travel restriction, and in Malaysia, for the duty free airports, about 60 per cent of the volume were purchased by Malaysian passport holders.

“Some of that volume, which was normally purchased in the duty free, are now being purchased in the domestic market, which is why we are seeing some volume stability in the second half of the year. 

“However, there is a little bit of an offset in the Southern part, particularly in Johor with the border closed to Singapore where normally volume would be stronger. In Johor we will see much more reduced volume this year as compared to last year,” he added. 

Meanwhile, the latest ICS commissioned by the Confederation of Malaysian Tobacco Manufacturers (CMTM) revealed that a staggering 64.5 per cent of all cigarettes consumed in August was illegal.

The illicit cigarette consumption in July was 62 per cent.

In Selangor, the study showed that illicit cigarette usage spiked dramatically to 66.5 and 65.7 per cent respectively compared to 61 and 60 per cent in July.

O’Rourke said the increase in illicit tobacco consumption points to the need for more targeted measures to deter smuggling and contraband purchases when Malaysia is experiencing a severe economic downturn due to the COVID-19 pandemic.

“There are certain quarters calling for a tax hike on tobacco products in the upcoming Budget 2021 but we must caution the government in the strongest possible manner not to impose any tax excise increase on tobacco products as it will only serve to worsen the situation and further damage legitimate retailers’ businesses which are already under pressure.

“An excise hike this year would widen the price gap between legal and illicit trade and will inflict damage on the legitimate industry and small and medium enterprises (SMEs) alike.

“There are some 60,000 retailers who derive up to 30 per cent of their revenue from the selling of tobacco not to mention government tax revenue,” he said.

O’ Rourke added that the legal tobacco industry directly and indirectly supports 500,000 jobs in the country.

“So an excise tax increase is in no way justifiable as we have already reached the stage of diminishing returns.”

He also called for the government to fully operationalise the Multi Agency Task Force (MATF) as soon as possible to check the proliferation of illicit tobacco products in the country, “which is already costing the nation approximately RM5 billion in lost revenue every year”.

With COVID-19 wreaking havoc on the economy and government experiencing revenue shortfalls, he said the MATF could be an effective vehicle to help Malaysia claw back lost taxations from the black economy.

“Approximately 12 billion illegal cigarettes are sold in Malaysia annually, the majority brought into the country through the abuse of transhipment routes via the country’s ports.”

O’ Rourke also suggested that the government pay attention to the issue of transhipment of tobacco products through unlimited entry points at the country’s borders.

“This transhipment loophole has been exploited for diverting duty-evaded tobacco products into the country with the false intent of moving the items to a neighbouring country.

“The government should clamp down on transhipment foul play by imposing a ban on tobacco product transhipment and designating a single point of entry to support enforcement efforts better,” he said.

O’ Rourke said in addition to the RM5 billion, Malaysia should also explore lost revenues from illegal vaping, which is estimated to be worth RM2 billion annually.

-- BERNAMA