Commentary:1

Title of the article: “Cigarettes will stimulate illegal market”, says RTBA Malaysia

Source of the article: https://www.nst.com.my/business/2021/11/744647/high-tax-e-

cigarettes-will-stimulate-illegal-market-says-rtba-malaysia

Date the article was published: November 11, 2021

Date the commentary was written: 22 February 2022

Word count of the commentary: 159 words

Unit of the syllabus to which the article relates to: Microeconomics

Key Concept being used: Intervention

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Cigarettes will stimulate illegal market, says RTBA Malaysia

November 11, 2021 @ 9:06pm

The tax rate proposed for vape products in Budget 2022 will result in an extreme
price surge for vape products and this will allow large-scale criminal organisations to
increase supply to fulfil black market demand, says RTBA Malaysia.
>BylineNST Business

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.

CONCEPT

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 government intervenes by imposing a tax on vape liquids which led
to an increase in the excise rate of vape products. This will lead to an increase in the
revenue of the government as vape products have a positive elasticity of demand and
are partial substitutes to cigarettes. An increase in the excise duty of vaping products
will lead to a steep rise in the retail prices, where customers might opt for cheaper vape
liquids. Another reason why the government has hiked the excise duty on these
products is to limit the consumption of demerit goods like cigarettes , tobacco and
nicotine &non nicotine liquids. This will lead to a creation of a black market where
large scale criminal organisations can increase the supply of vape liquids.