Petaling Jaya,24 October 2018- The Institute for Democracy and Economic Affairs (Ideas) has urged the government to adopt a new and tougher strategy to reduce illicit trade, as it is drains the government’s much-needed revenue and harms legitimate business.
Ideas CEO Ali Salman said in a statement today that it is crucial for the government to step up its efforts and establish a clear strategy, governed at the highest levels to tackle the issue, including increasing penalties and improving cooperation with the private sector.
“Illicit tobacco in particular remains a major problem and the government should hold back from any further increase in prices and review the existing tax structure as well as tightening enforcement on known smuggling routes,” Ali added.
Ideas, which has published a report titled: “Combating Illicit Trade: Lessons from Abroad”, proposes a series of practical recommendations to help combat illicit trade based on experiences from other countries.
The report, which builds on Idea’s previous research, “Illicit Trade in Malaysia: Causes and Consequences”, was shared with the Finance Ministry and other government agencies.
The report’s main recommendation include: adopt a new cross-government strategy with clear political ownership; set out a new, overarching illicit trade strategy to implement the promises of Buku Harapan; and establish an Illicit Trade Task Force chaired by the Minister of Finance to oversee implementation of the strategy and ensure all agencies contribute.
It recommends the government formalise cooperation with the private sector, by forming a Trade Enforcement Committee with membership from government agencies and industry to share information, consult on new policies and support operations.
Ideas also recommends the government to adopt specific targets for seizures in line with the scale of the problem to ensure consistent and proactive effort by the different agencies.
“The government should publish systematic annual statistics on seizures and penalties, so that the public is able to gauge the overall trends in illicit trade and hold the government accountable for its efforts to reduce it.”
The think tank pointed that the government should not further increase excise duties on tobacco, but consider a review of the current tax regime. This is given that the multiple tax increases on cigarettes have led to a drastic increase in the legal price of cigarettes, which has led to stark increases in the illicit trade in tobacco.
This is in light of experience in other countries, such as Canada and Pakistan, that have successfully reduced illicit cigarette trade after reforming excise duties, it added.
Additionally, Ideas said the government should ban the sale of duty free cigarettes at Langkawi, Labuan and Tioman, as the previous government had admitted that the tax free islands were a source for illicit tobacco.
However, it said this can be done on a time-limited basis, with reinstatement once enforcement capacities have been improved.
Ideas also urged the government to quickly proceed with plans to increase penalties to RM100,000, as the current levels of penalties do not act as a sufficient deterrent.
First published in The Sun Daily, 24 October 2018