EconomicS FunhousE: Illicit Trade Of Ciagarettes

British American Tobacco (Malaysia) Berhad is a tobacco production company working under compliance of Confederation of Malaysian Tobacco Manufacturers with two other main tobacco production companies named as JT International Berhad and Philip Morris (Malaysia) Sdn. Bhd. These tobacco companies seem to be earning a lot of money and gained a lot of strength in the consumer market but then they still have their own weakness. People never know who their biggest competitors are because their competitor is an underground activity which is doing illegal cigarette trading. Based on the analysis, the level of illegal cigarette trades increased in our country from 20 percent in 2002 to 36.5 per cent in 2010. As such, this encourages the underground economy to thrive effortlessly.

On the other hand, this makes the government to be losing due to the underground tobacco market smuggling in the economy. This is because the government will be losing their tobacco taxes revenues estimated to be at least RM2 billion annually. The annual 2 billion is so important to the government for a lot of beneficial uses for continuous improvement of Malaysian society such as helping in the government hospitality sector and to those senior citizens in the old folk’s home.

Nevertheless, this decrease of people buying legal cigarettes in the market makes a big losing to the legal cigarette trade company in Malaysia when the legal volume from 19.5 billion stick in 2002 to 13.5 billion in 2010. This shows a big reduction which is 31 percent in the volume cigarette sticks that are produced annually. This is because the illegal cigarette is extremely cheap compared to legal cigarettes. A pack of the cheapest legal cigarettes can go to RM 7.00 per pack of 20 sticks whereas a pack of 20’s illegal cigarettes can be bought for RM 2.00 – RM3.50. Hence, the act of increasing the taxes and the price of the cigarettes will only benefit the criminals who are doing this activity. This is because the higher the taxes and the price of a pack of legal cigarettes, the more the illicit trade of cigarettes and the more money they make. Furthermore, plain packaging and text of a legal cigarette will encourage the illegal cigarettes to produce more because it is cheaper to counterfeiting such as gold inks, special cardboards, colours, logos and graphic health warnings as mandated by Ministry of Health.

Banning such as displaying cigarettes in stores make buying of cigarettes more difficult out of sight out of mind but then the consumer will know where to get what they want and would not quit smoking. Banning the use of all the ingredients in cigarettes such as changing the taste will just make people to buy from illicit trade of cigarette which makes the taste that they wanted. Banning on smoking inside in public areas also decrease the output of legal cigarettes. In conclusion, neither the government nor the legal tobacco company will not gain any profit but the illicit trades of cigarettes done by the smugglers out there will only be gaining their profit.

Malaysia’s covered by long coastal lines, isolated jetties and porous borders encourages crime syndicates to smuggle in illegal cigarettes undetected. In short, the lower the price of the illegal cigarette, the higher is the demand of the illegal cigarette when it applied to the law of demand in economics. This is because the higher the price of legal cigarette, the lower is the demand of the legal cigarettes due to the increase of taxes on cigarettes. This can also be explained the higher price of legal cigarettes, the more illegal cigarettes will be supplied and contraband by the smugglers.

Illegal Cigarette Trades In Media: