KUALA LUMPUR: The government's announcement of new moves to limit the transshipment of cigarettes into Malaysia is expected to significantly boost efforts to tackle the longstanding problem of illicit cigarettes in the country.
The finance minister, during the tabling of the 2021 Budget last Friday, announced a slew of measures to address the tobacco industry's woes, including limiting transshipment of cigarettes to dedicated ports, as well as barring transshipment and re-export of cigarettes by small boats.
Transshipment involves cigarettes brought into Malaysia en route to other destinations. Instead of being declared as cigarettes, they are declared as transshipment or non-taxable goods which are destined for a third country, thus freeing them from Customs checks.
However, in most instances such consignments do not leave Malaysia and end up being sold in the country, thus flooding the market with illicit cigarettes and depriving the government of a taxable revenue source.
Greed has been cited as one of the main reasons behind the authorities' failure to curb the acts, which has led to illicit cigarettes making up an estimated 65 per cent of tobacco products sold in the country.
Sources with information on the issue said syndicates are willing to pay between RM100,000 and RM110,000 per 40-ft shipping container that manages to worm its way into the Malaysian market.
Corruption on the part of certain authorities, claimed one of the sources, means that the government loses more than RM5 billion annually in taxes as a result.
One source, speaking on condition of anonymity, said each container can hold some 1,000 to 1,040 master cases.
"Working on the assumption that each container bears 1,000 cases, this means the syndicates would be bringing in 10 million cigarettes, which have a taxable value of RM4 million. We haven't even touched on the value of the cigarettes themselves.
"If they have a market value of RM5 per box, this translates to RM2.5 million. This also means that each time a container is smuggled in, the country loses RM6.5 million.
"This is why such syndicates are willing to pay huge sums of between RM100,000 and RM110,000 to the authorities. This is nothing compared to the market value of the cigarettes and the taxes they avoid paying," the source told Harian Metro.
The payments of between RM100,000 and RM110,000 per container, claimed the source, would then be distributed to those involved in the activity.
"There is a vast network handling this, involving not just the authorities but also those working in the ports. These payments would usually be made in cash."
The source explained that the high 'fee' is not just to secure the release of the container from the port but also includes the delivery and safe escort of the contraband goods, usually to a store or warehouse. For example, cigarette containers which arrive in Port Klang, Selangor would, after several days, be brought out from the duty-free zone to specific warehouses in Cheras.
"This involves port staff, enforcement officers as well as 'tonto', comprising members of the public. The tonto's role is to escort the goods or find a safe way to reach the warehouse or store," said the source, adding that ensuring safe passage of the goods involves a large network of syndicates.
On the same matter, another source said the authorities have to deal with several challenges to stem the influx of illicit cigarettes into the country's ports.
Syndicates, claimed the source, have become more brazen and are openly abusing the rules and regulations.
"This is because our country's trade policies actually enable them to do so. Syndicates no longer have to resort to making false declarations in the hopes of bringing in their contraband.
"They would fill in legitimate transshipment applications, while their companies would also be registered with the Customs Department as a legitimate cigarettes exporter. This poses a very real and difficult challenge to the authorities to contain," claimed the source.
Syndicates, said the source, would use the transshipment policy to easily transport the contraband, which was supposed to be exported to neighbouring countries, and "hide them in plain sight" in warehouses in the ports' duty-free zones.
"These cigarettes are supposedly to be exported to Thailand after docking in Malaysia. In theory, this is a legitimate and legal way to spur international trade and generate revenue for the country.
"However, without realising it, we lose even more because these cigarettes do not even make it to Thailand. They are instead, with the help of insiders, diverted from our ports or the duty-free zones to other areas to meet local market demand.
"In the end, an empty container is loaded onto the ship to supposedly sail to Thailand. We haven't even delved into the issue of using the K8 declaration form to mask a container's destination," said the source when asked to explain the difficulties in stopping the syndicates' activities.
On the use of the K8 declaration form, the source explained that the method of bringing cigarettes into Malaysia is the same as exporting to Thailand.
"When cigarettes arrive at our ports, the containers would be stored in the duty-free zones for several days, after which they would be brought out for transport to Thailand. However, the containers would not make it to Thailand.
"The only thing that would reach the Customs Department in Bukit Kayu Hitam, Kedah or Padang Besar in Perlis are the K8 declaration forms. The cigarettes would have long found their way to the local market," claimed the source.
The source claimed that was most recently demonstrated by the seizure of illicit cigarettes worth RM3.3 million from Port Klang on Oct 21.
The raid, which was conducted by the Domestic Trade and Consumer Affairs Ministry, saw the seizure of 520,000 packets of cigarettes. These cigarettes were believed to be meant for export to a neighbouring country but were instead targeted at the local market.
Meanwhile, ministry enforcement director Datuk Iskandar Halim Sulaiman said preliminary investigations suggested that the illicit cigarettes were imported from abroad.
"The process was handled by a Petaling Jaya-based company. The consignment was being kept temporarily at Port Klang but was eventually meant to be sold locally," he said.
Iskandar Halim said while the smuggling of cigarettes via 'lorong tikus' (smugglers' routes) at sea does take place, the scale pales in comparison to smuggling using legitimate channels at the country's ports.
"Logically, exporters could easily ship the cigarette consignments from Indonesia or Vietnam directly to Thailand (supposedly the end destination), so why is there a need to have the shipments stop over in Malaysia first?
"Moreover, cigarettes have a shelf life. Why would importers want to have them stop in Malaysia first before sending them along to Thailand? Wouldn't it be more efficient to ship the items directly to Thailand?" he said, expressing hope that the government would look into the matter.
A Nielsen research conducted up to July this year showed that illicit cigarette syndicates control up to 64.5 per cent of Malaysia's tobacco market.
The study also showed that illicit cigarettes comprise 42.6 per cent of white cigarettes, 15.2 per cent of 'kretek' (clove) cigarettes and 6.7 per cent of cigarettes with fake stamp duties.
Studies also showed that the 10 most commonly-smuggled cigarette brands in Malaysia were John, U2, Gudang Garam, Saat, LA, Canyon, Era, Sampoerna, Luffman and A380.