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High tax on e-cigarettes will stimulate illegal market, says RTBA Malaysia

Publish date: Fri, 12 Nov 2021, 09:30 AM

KUALA LUMPUR: The government should examine the long-term consequences of the excise tax on vaping items which was just announced in Budget 2022.

Retail and Trade Brands Advocacy Malaysia Chapter (RTBA Malaysia) managing director Datuk Fazli Nordin said while it is a significant step toward controlling Malaysia's booming vape industry, it is necessary to examine the impact of the high tax rate on vape items.

"The recent Budget 2022 tabling saw the government announcing a tax of RM1.20 for each millilitre of vape liquid, for both nicotine and non-nicotine liquids, effective 1 January 2022.  

"The tax rate proposed will result in an extreme price surge for vape products.

"Reports have indicated that the excise rate for vape products alone would be higher than the current retail price of these products," he said in a statement today.

According to Fazli, a bottle of 30ml liquids, for example, will be taxed at RM36, which is about the same as its current retail price.

Retail prices, therefore, will undoubtedly rise, prompting consumers to seek out cheaper, untaxed goods.

Thus, this will allow large-scale criminal organisations to increase supply to fulfil black market demand.

"Our local vape industry has grown significantly over the few years and is in prime position to develop further.

"We already have the ideal landscape, such as the access to markets, opportunities for local small and medium enterprises (SME), macroeconomic stability, skilled and responsive labour markets, as well as a well-developed infrastructure.

"The implementation of high tax rates may overturn the progress made by the industry and in the long-term, can cause significant losses to local SMEs," Fazli said.

RTBA Malaysia is a non-governmental organisation advocating effective regulatory, financial and taxation policies affecting retailers and brands.

According to RTBA Malaysia, there has been a case of a high tax rate resulting in the creation of a black market.

"We have seen Italy's vape industry experiencing significant constraints from high tax rates.

"According to studies, the tax rate on vape e-liquids reached a high of €0.385 (RM1.85) per millilitre at one time, and Italy's Department of Finance collected significantly less revenue than expected as consumers shifted to tax-free alternatives.

"Ultimately, the Italian government reduced the vape tax, recognising that the excessive rates had fostered a black market and drove users to unregulated products," Fazli said.

He said this proves that a balanced taxation framework is vital for the sustainability of any industry.

"We believe that tax policies need to be evidence-based and thoughtfully designed to avoid unintended consequences," Fazli said.

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