Black market for vape liquids looms as…


This text first appeared in The Edge Malaysia Weekly, on November 15, 2021 – November 21, 2021.

FOR years now, gamers within the vape and tobacco industries have referred to as for the regularisation of the vaping business. In Price range 2022, their pleas had been heard, however not in the best way they anticipated.

From Jan 1, 2022, each nicotine- and non-nicotine-based vape liquids will see the imposition of excise obligation amounting to a hefty RM1.20 per ml, which suggests vapers will most likely must pay double for an identical quantity of vape juice.

The larger fear, although, is whether or not the excessive excise obligation will create a black marketplace for the vape business and the way massive it may get.

CGS-CIMB Analysis analyst Kamarul Anwar factors out in a report dated Nov 8 that the excessive excise charges may lead to an enormous black market much like that which has lengthy plagued the flamable cigarette class.

“The vaping population in Malaysia is the younger generation. Their purchasing power is shrivelled, with many jobs’ starting salaries lower than those of their predecessors in both nominal and real terms.

“So, of course, they are much more price-sensitive. With the excise duty potentially doubling vape liquid prices, I wouldn’t be surprised if they have no choice but to seek a cheaper alternative in the black market,” Kamarul tells The Edge.

Malaysian Vape Business Advocacy president Rizani Zakaria has additionally cautioned towards the imposition of excessive duties for vape merchandise, as he fears that the surge in costs would encourage a black market.

“We recommend that the government maintain the current excise rate at 40 sen per ml. The new rate has basically tripled [the existing excise duty] and will definitely cause negative consequences in the industry,” he says in an e-mail reply to The Edge.

At the moment, solely non-nicotine-based vape juices are taxed at a fee of 40 sen per ml.

In Malaysia, there are reportedly 1.12 million vapers, in accordance with a examine by the Malaysian Vape Chamber of Commerce (MVC) in February this 12 months.

The examine discovered that 77% of vapers used an open-system machine and consumed a mean of 12.4 ml per week, whereas 23% most popular a closed-system machine — a vape pen — and consumed a mean of 5.2 ml per week.

Again-of-envelope calculations present that, primarily based on the brand new excise obligation charges and the typical consumption sample of vapers in Malaysia, the federal government may stand to reap about RM693 million per 12 months from vape excise obligation.

If the excessive excise obligation breeds a black marketplace for the vape business, nonetheless, the potential tax assortment may very well be in jeopardy.

In a press launch, Retail and Commerce Manufacturers Advocacy Malaysia Chapter (RTBA Malaysia) managing director Datuk Fazli Nordin pointed to the instance of Italy, which additionally imposed excessive charges on its vaping liquids.

“We have seen Italy’s vape industry experiencing significant constraints from high tax rates. According to studies, at one point, the tax rate for vape e-liquids was at a high of 38.6 euro cents (RM1.85) per ml and Italy’s Department of Finance collected far less taxes than its projection as consumers turned to untaxed products.

“Ultimately, the government of Italy slashed its vape tax, recognising that high rates create a black market and cause consumers to turn to unregulated products,” Fazli says. He provides that tax insurance policies have to be evidence-based and thoughtfully designed to keep away from unintended penalties.

Vaping is seen as a hurt discount product and research performed by Public Well being England have proven that vaping is 95% much less dangerous than tobacco.

It is usually price noting that the report by MVCC identified that 57% of vapers in Malaysia switched to vaping as a way to give up smoking.

Whereas the aim of the excise obligation is to “promote a healthy lifestyle” amongst Malaysians, there are issues that former people who smoke may return to cigarettes due to the excessive excise charges.

Rizani says vape merchandise may very well be costlier than cigarettes subsequent 12 months with the excise obligation.

“In turn, this may lead many vapers (the majority of whom are former smokers) to return to smoking, as they will be deterred by the high prices of vaping products. Smokers who have been considering a switch would also be deterred from making this move.

“In a survey we conducted earlier this year, we found that the majority of Malaysian vapers are ex-smokers (88%). According to the National Health and Morbidity Survey 2019, there are an estimated 4.9 million smokers and 1.12 million vapers in Malaysia. Even if half of the 88% reverted to smoking, we [would be] looking at close to 500,000 new smokers,” he cautions.

With an already big black market within the flamable cigarette class, authorized gamers like British American Tobacco (M) Bhd (BAT) are additionally more likely to must take care of the potential of a black market forming within the vape class.

BAT goals to develop into a serious participant in Malaysia’s vape market inside three years, says Kamarul in his report. Beforehand, the tobacco firm had not introduced in its personal vape merchandise as a result of the business was unregulated.

“It said this vision [of being a major player] was supported by the track records of its sister companies in other countries. This is Malaysia, however, where many of those with a high propensity to smoke have [no] purchasing power. Thus, quality and marketing prowess can take a backseat to pricing,” he says, including that authorized cigarettes will proceed to wane in relevance.

Taxes are solely step one in the direction of regulation, says Rizani. The subsequent necessary step is the regulatory framework for vape merchandise to make sure that they not solely adjust to high quality and security requirements but in addition don’t fall into the fingers of underage customers.

Just lately, Well being Minister Khairy Jamaluddin informed parliament that the Ministry of Well being was within the technique of amending the Poisons Act 1952, which regulates medicines and medicines, together with nicotine. Particulars are scant at this juncture.

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