Untaxed tobacco sold on the black market costs Southeast Asian governments US$3.69 billion (RM15.43 billion) in lost revenue each year, according to the Center for Market Education (CME).
In a report released today, the think tank cited publicly available data showing that the region generates more than US$20 billion from tobacco excises annually, but loses 18% of potential revenue to illicit trade, and likely over US$11 billion more in the next three years.
“Losing US$11 billion to illicit trade over three years is not merely a budgetary issue, but a missed opportunity to invest in people and communities,” CME CEO Carmelo Ferlito said in a statement.
Ferlito said the lost revenue could be used to strengthen essential services such as healthcare, education and climate resilience infrastructure.
“While the figure represents only 0.10% of the group’s combined gross domestic product (GDP), it is substantial in budgetary and welfare terms – 7.6% of healthcare budgets and 3.6% of education budgets.
“These ratios translate fiscal leakages into tangible social opportunity costs: fewer hospitals, schools and social programmes,” he said.
Ferlito noted in the report that the distribution of lost revenue was highly skewed, as Indonesia, Malaysia, the Philippines and Thailand together account for 94% of the total fiscal loss (US$3.47 billion).
He said Malaysia showed the sharpest imbalance between tobacco taxation and illicit trade, as illicit cigarette sales made up about 55% of the market in 2024, having “surged dramatically” after a 40% tax hike in 2015.
“The estimated US$0.77 billion in lost public revenue (in 2024) represents 122% of total tobacco excise collections, indicating that the government loses more revenue than it earns from the sector,” he said.
Ferlito said the loss made up 0.18% of GDP, 8.6% of the healthcare budget and 6% of the education budget.
“Relative to total tax revenue, the loss is 1.47%, among the highest in the region,” he said.
Ferlito said Malaysia’s case showed that after a point, higher tax rates reduce net revenue by fuelling illicit trade.
“In line with CME’s long-standing call for humility in policymaking, the Malaysian case once again underscores the importance for policymakers to be mindful of the unintended consequences of their actions,” he said.
