Impact of Cigarette Prices on Cigarette Sales and Consumption in Malaysia

Abstract

To achieve the target and to reduce the cost and burden from smoking, the Malaysian government regulates and implements several tobacco control policies and campaigns to control cigarette consumption and reduce the proportion of smokers in the Malaysian population. It is undeniable that tobacco tax policy plays a significant role in reducing cigarette consumption globally, as mentioned in the World Health Organization (WHO) FCTC Article 6 (WHO, 2003). An effective taxation policy would reduce cigarette demand and at the same time, generate additional tax revenues for the government. For example, Ross & Al-Sadat (2007) predicted for Malaysia that an increase of 25% in excise tax would reduce cigarette consumption by 3.37% and will generate an increase of RM434 million in tax revenues. In addition, Mohamed Nor et al. (2013) contributed to a study which concluded that the excise tax rate in 2009 was not at the optimal level and had not garnered the maximum tax revenue, showing that the optimal real excise tax rate should have been about 16.5% higher in 2009. While the study was carried out in 2009, the findings have proven that Malaysia’s cigarette tax rate was not high enough at that point in time and even now. This suggests that the Malaysian government should continue to increase cigarette tax rates without worrying about the argument by the industry that higher tax will reduce government revenue.