Malaysia bleeds $775m yearly

The country loses around $775 million in tax revenue each year to illicit tobacco. Illegal products now account for 55% of the entire tobacco market.

Worst cases in the region

Malaysia's 55% illicit share ranks among the highest of 14 Asia-Pacific economies studied. Only Pakistan at 54% and Australia at 60% are comparable.

Lost revenue exceeds collections

The money lost to illegal tobacco in Malaysia and Pakistan now surpasses what governments actually collect from legal tobacco taxes.

Regional losses hit $15 billion

Across the region, governments collect $31 billion in tobacco taxes but lose another $15 billion to illicit trade. That's $48 lost for every $100 collected.

Australia loses the most money

Australia recorded the largest revenue loss at $9.6 billion, followed by Indonesia at $1.65 billion despite having just 11% illicit market share.

A tax policy problem

Illicit tobacco should be treated as a fiscal challenge, not just a law enforcement issue. Higher taxes don't work if consumers leave the legal market.

“The relevant question is not simply how heavily tobacco is taxed, but how much of that tax can actually be collected.”

High taxes can backfire

When taxation pushes consumers outside the legal market, governments undermine their own revenue goals. Collection matters more than tax rates.

“When taxation pushes an increasing share of consumers outside the legal market, governments risk undermining their own fiscal objectives.”

Gradual changes recommended

The study recommends gradual tax adjustments matched to enforcement capacity. Markets with high illicit shares may need temporary tax freezes.

Enforcement must improve

Solutions require cooperation between tax authorities, customs, police and border agencies. Regional coordination is needed to tackle cross-border supply chains.