Dare Any Tobacco Tax Hikes In Budget 2026 Will Fuel Malaysia S Illegal Cigarette Market

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POLICY think tank Datametrics Research and Information Sdn Bhd (DARE) has warned the government that any increase in cigarette excise duties in Budget 2026 without parallel enforcement upgrades will worsen Malaysia’s already dominant illicit cigarette market which currently accounts for 54% of total cigarette sales.
This is given that past experience shows that steep tax hikes – while intended to reduce smoking and increase government revenue – can have the opposite effect if enforcement is not strengthened at the same time.
“We’ve seen this before. The 2015 excise hike which more than tripled duties from 12 sen to 40 sen per stick triggered a surge in illegal cigarette trade. The illicit share of the market jumped from 33.7% in 2014 to close to 60% by 2016,” recounted DARE’s managing director Pankaj Kumar.

“Legal volumes collapsed but overall consumption barely changed. Smokers simply turned to smuggled products, costing the government billions in lost revenue.”
Datametrics Research and Information Sdn Bhd (DARE) managing director Pankaj KumarDARE further highlighted similar patterns in Australia where tobacco taxes were raised by 25% in April 2010 and12.5% annually between 2013 and 2020.
While legal sales dropped, illicit tobacco flourished. The Australian Taxation Office estimated that illicit tobacco made up around 18% of the total market with more than A$2.7 bil (RM7.5 bil) in duty evaded in 2022-2023.
“These examples demonstrate a consistent pattern. Where tax increases outpace enforcement capacity, the illicit trade expands, governments lose revenue and the public health objective is undermined,” added Pankaj Kumar.
Any increase in cigarette excise duties in Budget 2026 without parallel enforcement upgrades will worsen Malaysia’s already dominant illicit cigarette market which currently accounts for 54% of total cigarette sales (Image credit: Bernama)
In this regard, DARE urges policymakers to exercise caution in Budget 2026 by suggesting a balanced approach:
Tie any excise hike to illicit cigarette enforcement initiatives;Strengthen border controls, track-and-trace systems and penalties for smuggling; andEnsure transparency in reporting illicit market data.“Simply raising taxes without addressing the parallel illegal market is not a solution. It will only fuel smuggling syndicates, penalise law-abiding retailers and deprive the government of the very revenue it seeks to raise,” cautioned Pankaj.
“We need a balanced approach that protects both public health and public finance.” –  Focus Malaysia

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