Exclusive: 'Kiddie packs will help fight illicit cigarette trade'

ALLOWING the sale of smaller packs of cigarettes makes sense for a number of reasons, tobacco
companies argue.

The major reason, of course, is financial, but it is not just for the benefit of these companies, but
others, such as retailers and the government.

The reason for this is the staggering numbers of illicit cigarettes available in the market, which go for
anywhere between RM3 and RM5 per pack of 20 sticks, compared with between RM12 and RM17 for
legal ones.

Citing government-culled statistics, they say an average of 60 per cent of cigarettes in the Malaysian
market are illicit, meaning that the government loses out on 60 per cent of the revenue in the form of
excise duties, and this amounts to billions of ringgit.

British American Tobacco (Malaysia) Bhd (BAT Malaysia) managing director Erik Stoel says the biggest
challenge the industry faced is competing against illegal cigarette trade in Malaysia.

The trade in illegal cigarettes in Malaysia has grown to an extent that it now dominates the market
in the east coast states, where retailers are openly selling them on their shelves.

These smugglers and retailers are not deterred by the punishment and fines they get, if caught,
because the profit they make is worth the trouble.

Stoel says penetration for illicit cigarettes varies.

For instance, he says, in states with more urban areas, the statistics are below the national average of
60 per cent.

But in the east coast, where the earning power is lower, the numbers are much higher.

Kelantan, he says, has a penetration of 83 per cent for illicit cigarettes, while Terengganu shows a 75
per cent market penetration.
While enforcement is crucial and ongoing, it is a very challenging task to clamp down on the supply
of more than 11 billion sticks of illegal cigarettes that is moving around.

Strong enforcement to curtail supply is important, but this alone will not shift illegal into legal
consumption.

Due to this uncontrollable influx of smuggled cigarettes, the Customs Department has lost a lot to
the illegal trade, especially in terms of tax revenue.

JT International Bhd (JTI Malaysia) managing director Guilherme Silva shares Stoels views on the
reintroduction of smaller packs, adding that there is the possibility of a reduction in cigarette
consumption.

He says when a consumer buys a 20-stick pack, it is likely that he or she will finish the whole pack in a
day and not keep it overnight because of freshness issues.

If they buy smaller 10-stick packs, they might stop at one box a day and get a new box of 10 the next
day.

With the increased cigarette prices, says Silva, more and more smokers are turning to illicit ones, even
though they know the risks of smoking such cigarettes are higher due to unregulated amounts of
nicotine and tar.

(If we have smaller packs), there is a possibility that these smokers will buy legal cigarettes with
regulated amounts of nicotine and tar.

Both Stoel and Silva insist that kiddie packs will not encourage the young to smoke.

They say excise duties on tobacco products are based on each stick, meaning that the price of a pack
of 10 between RM7 and RM9 will still be higher than buying a pack of 20 sticks of illicit cigarettes.

Silva says the industry hopes that the government could consider their proposal for the reintroduction
of small packs as a pilot project with a three-year duration, before observing its trend and impact.
Malaysia is among the top three Asean countries in the trade of illicit cigarettes, above the
Philippines, Cambodia and even Indonesia.

He says this may well change with the introduction of kiddie packs.

While lauding Customs Departments enforcement strategies over the last few years, Silva and Stoel
say a joint effort between government agencies and the private sector, such as BAT and JTI, will
produce better results in the fight against illicit cigarettes.

However, Stoel says, enforcement alone will not carry the day, adding that this is why the tobacco
industry believes smaller packs would help the fight against illicit cigarette trade.

On the often-quoted Framework Convention on Tobacco Control (FCTC), which recommends that
countries raise excise duties, among other steps, to curb smoking, both Stoel and Silva say one of the
reasons illicit cigarette trade has increased so much in Malaysia is the increase in duties.

They claim that the increase in duties has been too drastic and fast, and point out that while they are
recommended by FCTC, anti-tobacco lobbyists fail to realise or mention that the convention
recommends a gradual increase so as to prevent such a problem as that being faced by Malaysia today.