Improving estimates of the illicit cigarette trade through collaboration: lessons from two studies of Malaysia.

This paper critically analyses contrasting estimates of Malaysia's illicit cigarette trade in 2011, 2015 and 2019 by Bui et al and Koya et al who previously produced independent estimates at about the same time using tax gap analysis. Collaboration between the two authors' teams emerged due to the discrepancies in their results, generating this paper to explore the methodological issues identified and hence produce revised estimates of the rate of illicit. Key issues identified were: Bui et al's assessment of legally imported cigarettes impacting all years; their exclusion of ad valorem duty affecting the 2011 and 2015 estimates; Koya et al overlooked the value of cigarettes for export market in their ad valorem calculation and used the sales value of imported tobacco/tobacco products, not just cigarettes, both of which impact estimates for 2011 and 2015. Recalculations using Koya et al's consumption data reveal that in 2019, illicit cigarettes accounted for about 70% of the market, which is higher than Bui et al's estimate (38%) but slightly lower than Koya et al's (72%). For 2011 and 2015 where ad valorem applied, the corrected estimates show a share of the illicit cigarette market of approximately 41.1% and 52.7%, respectively, differing from Bui et al's 0% in 2011 and 29.6% in 2015, and Koya et al's 51% in 2011 and 55% in 2015. This paper provides essential lessons for addressing methodological issues between authors' teams and updated estimates of Malaysia's illicit cigarette trade, verifying that Malaysia faces a substantial illicit cigarette trade problem.

Magnitude of illicit cigarette trade in Malaysia: empirical evidence compared with industry studies.

BACKGROUND: The tobacco industry contends that the illicit market in Malaysia occupies 62.3% of the total cigarette market. If this is true, Malaysia has one of the largest shares of illicit cigarettes in the world. METHODS: This study employs a rigorous gap analysis to measure the size of the illicit cigarette trade in Malaysia and compare it with the industry estimates. FINDINGS: We found that in 2019, the illicit cigarette market share ranged from 38.2% to 52.5%, depending on assumptions with respect to consumption under-reporting, which is substantially less than the industry estimates. We found that the size of the illicit cigarette market was not driven by higher excise tax: doubling the excise tax rate from RM0.20 to RM0.40 per stick in November 2015 resulted in only a slight increase in the illicit cigarette market share and no increase in the number of illicit cigarettes in the market. CONCLUSIONS: Therefore, a reduction in cigarette excise taxes, as suggested by the industry, will not solve the problem of illicit cigarette trade in Malaysia. Instead, the government should ratify the Framework Convention on Tobacco Control's Protocol to Eliminate Illicit Trade in Tobacco Products and implement the strategies outlined in the protocol.