KUALA LUMPUR: Cigarette prices may increase again even though tobacco companies are engaged in a price war by ignoring a Sales and Services Tax (SST) requirement.
Cigarette makers had reduced their prices, despite the 10 per cent SST imposed on them from September 1, but analysts believe this was only an interim measure.
Key players British American Tobacco (Malaysia) Bhd, JT International Bhd (JTI) and Philip Morris (Malaysia) Sdn Bhd had reduced their product prices and even even rolled them back to pre-SST level.
For instance, BAT reportedly reverted its prices to pre-SST levels, with its premium brands now costing RM17 compared with RM17.50 briefly after the SST came into effect. Pall Mall and Rothmans packs had been reduced to RM15.50 and RM12 each, from RM16 and RM12.50 respectively.
JTI reportedly reduced prices of its LD by 20 sen to RM11.80, although prices of its premium brands — Mevius and Winston — remain unchanged at RM17.50 and RM16 respectively.
Analysts expect prices to increase again again once the government provided clarity on the SST implementation of the SST on cigarette makers.
“Tobacco companies have been losing their power to increase their market share, given the higher number of illicit cigarettes in Malaysia every year,” Putra Business School senior lecturer Dr Ahmed Razman Abdul Latiff told the New Straits Times.
This had caused them to use the lack of clarity in the new tax system on the cigarette market as an excuse to reduce the prices, he added.
“We expect the prices to be higher as previously after the SST was implemented on September 1. This situation will be similar to when the Goods and Services Tax (GST) was introduced,” said Ahmed Razman.
JTI, meanwhile, said there were currently differences in prices set by tobacco manufacturers and this had triggered a pricing dynamic in the market not seen in Malaysia for many years.
“In Malaysia, any cigarette price change is subject to regulatory approval by Ministry of Health. In relation to any tax-driven price increase, it is illegal for any tobacco manufacturer to absorb any quantum of the increase,” said JTI Malaysia managing director Cormac O’Rourke in a statement on Friday.
JTI claimed that the ministry’s inaction had led to the price war.
The company called on the ministry to clarify the government's position on the implementation of SST on cigarettes.
O’Rourke said there were products where prices had increased only to revert to old pricing days later.
“When GST was zero-rated on June 1, both the Ministry of Health and Ministry of Finance issued specific statements that tobacco companies were prevented from reducing prices equivalent to the six per cent GST imposed on the product,” he noted.
Analysts said the price war had stemmed from key players’ eagerness to maintain their market share and sales volume, which was heavily dominated by the illicit market.
The challenge posed by the illicit market, however, might slow down once the government kept its pledge to stop smuggling of alcohol and cigarettes across borders, they added.
With the price war, the analysts said tobacco companies’ sales volume should fare better than when they hiked their prices after SST was implemented.