BAT Hopes for Moderation in 2011 Budget

Source from:  Bernama 09/09/2010

British American Tobacco (M) Bhd (BAT) hopes the government will continue to reflect a balanced moderate and gradual excise increase regime in the upcoming Budget 2011. Hopefully this will be reflected in tobacco taxation, said its Managing Director, William Toh. Illicit cigarettes in Malaysia have increased to 37.5 per cent from 14.4 per cent in 2004, and very likely would continue to increase due to further tax-led wide price gap increased between legal and illegal cigarettes, he said. "The burgeoning black market has become a daunting challenge to our industry with the increase resulting in two out of five sticks consumed are illicit. "It is a lucrative multibillion dollar trade that deprives the government of much needed tax revenue, impacts the legitimate tobacco industry and undermines health agenda by making cheap smuggled cigarettes available," he told reporters after the company's corporate talk with the media, today. The government is said to incur a loss of RM2 billion each year from unpaid duties on illicit cigarattes. In 2009, the government lost corporate tax revenue of about RM240 million. The top five illicit cigarettes brands are Gudang Garam, Luffman, LA Kretek, June Slims and League. In August, the National Kenaf and Tobacco Board announced that cigarette manufacturers will be taxed half-a-sen for every stick sold as cess tax, beginning Sept 1. The possible implementation of cess on tobacco products is on top of excise and sales taxes, that would lead to higher price differentials between legal and illegal cigarettes. "The possible implementation may exacerbate illicit cigarettes problem. "And increase in prices does not reduce cigarette consumption, but provides more room for illicit activities to take place," Toh said. "Currently, illicit cigarette distribution and volume is similar to BAT, therefore if prudent measures are not taken, the illicit activity will surpass industry regulators," William explained. Speaking on how the possible implementation of cess would affect BAT, he said there is no direct impact to the company, as any tax imposed would be borne by consumers. Citing Singapore, he said due to high level of illicit trade the Singapore government did not increase excise rate for the last five years. This resulted into revenue growth by an average of eight per cent per annum between 2006 and 2008, due to reduction in illicit trade. "Hong Kong government is another example. It did not increase excise for seven years until last year when excise was increased by 50 per cent and illicit trade grew by 127 per cent. "So, basically, price increase provides more avenue for higher illicit trading which damages the industry," he reiterated. Moreover, with cigarette price in Malaysia being the second highest amongst Asean countries, after Singapore, the country becomes an attractive market for illicit trade. Therefore, BAT also hopes that the government would re-consider cess implementation and stricter penalties for illicit traders in the upcoming Budget 2011. BAT with a 60 per cent market share has nine billion cigarettes consumption volume per annum with 60 per cent to 70 per cent utilised production capacity, currently. Its major brands are Dunhill, Kent, Pall Mall, Peter Stuyvesant and Benson & Hedges, with Dunhill being the key growth contributer to the market leader. Enditem