Prepared by Helmy Haja Mydin and Arief Izuadin
18 October 2024
Credit photo : Ivy Shirn
In the lead-up to Budget 2025, there has been extensive commentary on the need to expand Malaysia's tax base. Among the suggestions, the introduction of an inheritance tax has sparked considerable debate, despite being neither novel nor particularly controversial. Politicians and various associations have voiced strong opinions on the matter.
However, one area that has received surprisingly little attention is the potential for a tobacco tax increase, even though the last hike occurred in 2015. This is particularly interesting given the prominence of tobacco policy in recent discussions, including the generational endgame strategy and the development of a regulatory framework for vape products.
Given the relative public support for tobacco control measures, one might assume that a tax increase on tobacco products would not provoke significant backlash. The issue is further underscored by the fact that cigarettes have become more affordable since the last tax increase, making the case for revisiting this tax all the more relevant.
Understanding affordability
Earlier this year, a tobacco control expert from Johns Hopkins University noted that cigarettes in Malaysia have become more affordable year on year. Affordability is a crucial concept in understanding consumer behaviour, particularly in relation to health-related goods such as tobacco. It refers to the cost of goods and services relative to the income levels of individuals or households, impacting their purchasing decisions (World Health Organization, 2015).
Affordability plays a critical role in influencing tobacco consumption patterns, particularly among vulnerable populations. Variables such as i) price relative to income; ii) regional comparisons; iii) impact of taxation; and iv) public health implication.
Higher Percentage = Less Affordable
Less Percentage = More Affordable
Affordability – percentage of GDP per capita required to purchase 2000 cigarettes of the most sold brand
Analysis of Cigarette Affordability in ASEAN Countries
Affordability of cigarettes in Malaysia, as indicated by the percentage of GDP per capita required to purchase 2000 cigarettes of the most sold brand, has shown fluctuations over the years. The following is a summary of Malaysia's data alongside its ASEAN neighbours for context:
Malaysia's Affordability:
This data shows that Malaysia's affordability has been relatively stable but has risen at certain points, particularly in 2016. Increases in 2016 show that the peak at 4.30% indicates a significant rise in the percentage of GDP per capita needed to purchase cigarettes. This may reflect either an increase in cigarette prices or a stagnation in GDP growth relative to tobacco prices. Subsequent Declines reflected by the decreases in 2018 and 2020 suggest either a stabilization of prices or improvements in GDP growth, allowing a slight easing of economic burden on the users.
Comparative Affordability in ASEAN
Affordability is measured by the percentage of GDP per capita required to purchase 2000 cigarettes of the most sold brand in each country. This metric is crucial for understanding the economic burden of smoking, especially in low- and middle-income populations among ASEAN countries.
Based on the data given, the lowest percentage is Singapore (1.31% in 2022), meanwhile the highest percentage is Timor Leste (12.55% in 2022). Although by proportion Brunei is more inferior to Singapore, however it is difficult to determine the pattern due to lack of prior data before the year 2022.
On the regional average (in the year 2022) are countries like Indonesia (4.98%) and followed by the Philippines (7.11%), present significantly higher affordability which makes cigarettes more accessible in those countries.
Total Affordability Across ASEAN Countries (2012 - 2022)
This average gives a clearer understanding of cigarette affordability trends across ASEAN countries over the past six years, highlighting regional differences and the potential impact of tobacco taxation and policy measures.
Malaysia's average affordability of cigarettes (3.51%) is lower than the ASEAN average (4.47%). This indicates that cigarettes are relatively more affordable in Malaysia compared to the average of other ASEAN countries.
Ripe for government intervention
Given that Malaysia's affordability is lower than the regional average, this suggests a potential area for government intervention. Increasing tobacco taxes could help align Malaysia with regional trends aimed at reducing smoking prevalence and making cigarettes less accessible. As the country also looks for additional sources of tax revenue, revisiting a tobacco tax in Budget 2025 represents a low-hanging, controversy-free ripe for plucking.
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