“If you tax cigarettes at a high rate, you will create room for cigarette smuggling to take place,” said Labuan MP Rozman Isli during the debate on the 2022 Supply Bill in the Dewan Rakyat today.

Cigarette and tobacco products have been listed as taxable goods on all duty-free islands including Labuan, Langkawi, Tioman and Pangkor since Jan 1.

“Why did we remove cigarettes from the duty-free list? If you want to stop cigarette smuggling, don’t impose high taxes on them,” Rozman said.

A study commissioned by the Confederation of Malaysian Tobacco Manufacturers found that Malaysia has the highest penetration of illicit cigarettes in the world.

The study reported that 64.5% of cigarettes sold in the country as of August 2020 were illegal, a 25% increase compared with 2015 figures. This illicit cigarette industry is estimated to cost Putrajaya some RM5 billion in tax revenue.

Think tank Datametrics Research and Information Centre had previously cautioned against tax increases, saying they drive consumers towards cheaper, illicit products.