Malaysia: BAT Awaits Impact of Govt Cigarette Ruling

Source from:  Business Times  01/23/2013

BRITISH American Tobacco Malaysia Bhd (BAT) says it is too early to tell if the government's move to make the cigarette industry reduce tar and nicotine levels in cigarettes will spur the illicit market.

Illicit cigarettes, a major problem for the country's three big cigarette-makers - BAT, JT International Bhd and Philip Morris Sdn Bhd - accounted for 34.9 per cent of entire cigarette sales in Malaysia as at August last year.

"We don't know what impact the move will have on the illicit cigarettes. The nicotine and tar levels for the best-selling illicit brand in Malaysia is very high, so (we know) there is very strong acceptance for strong cigarettes in this country. But, there are also some (illicit) brands that have very low levels. So we'll be interested to see the impact," BAT head of business development services Azlan Ibrahim said.

He was responding to a question on the matter after delivering a luncheon talk entitled "The Economics of Illicit Cigarettes", organised by MIDF here yesterday.

Last week, Health Minister Datuk Seri Liow Tiong Lai said the proposal by the government to reduce the two substances had been deliberated on and a detailed announcement would be made in June before being enforced by year-end.

It was reported that the government proposed for the tar content in each cigarette to be reduced by 5mg to 15mg, while the nicotine level would be cut by 0.2mg to 1.3mg, as the current levels are deemed too high. The move is part of the government's ongoing attempts to reduce the number of deaths from smoking-related illnesses.

Azlan said illicit sales, though trending flat of late thanks to there being no excise duty increase last year and better enforcement, still remains high at 34.9 per cent. The level had peaked at 37.5 per cent in 2009.

He said the price difference between a 20-stick pack of premium cigarettes and a similar-sized illicit brand had widened to RM7.20 last year, compared to RM4.70 in 2005.

"It's a big problem for us as this is where revenue is impacted," he said.

He estimated that the illicit industry, which sells about nine billion sticks a year, is worth about RM1.17 billion a year.

The government is said to lose out about RM2 billion a year in tax revenue from the illicit industry. Enditem