Illegal tobacco trade erodes tax revenue and public spending in Asia-Pacific economies
A new study finds that illicit tobacco sales are costing Asia-Pacific governments billions in lost tax revenue, with Malaysia and Pakistan facing the highest market penetration.
An analysis of tobacco taxation and illicit market share across 14 Asia-Pacific economies reveals that illegal trade is a major fiscal challenge, cutting tax revenue by roughly 1.6 percent of total collections. While Australia suffers the greatest monetary loss, Malaysia and Pakistan experience the deepest market penetration, with illicit sales estimated at 55 percent and 54 percent respectively. The report highlights that higher excise rates can unintentionally expand the price differential between legal and illegal products, encouraging consumers to switch to untaxed alternatives.
It recommends shifting policy focus from duty hikes to protecting the legal market base, especially in countries where the illicit share is already high. CME’s chief executive, Carmelo Ferlito, stresses that the effectiveness of tobacco taxes depends on the proportion of consumption that remains within the regulated market.
Why it matters
Illicit tobacco undermines government budgets and public services, prompting a rethink of tax strategies across the region.
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