Covid-19: Lower income, high excise tax fuelling black market in Malaysia

Contraband cigarettes seized by the Royal Malaysian Customs displayed during a press conference in Perai on July 29, 2020. ― Picture by Sayuti Zainudin
Contraband cigarettes seized by the Royal Malaysian Customs displayed during a press conference in Perai on July 29, 2020. ― Picture by Sayuti Zainudin

KUALA LUMPUR, Aug 19 ― As consumers change their purchasing habits due to the economic impact of Covid-19, the black market problem does not look like it is going away any time soon.

Professor Yeah Kim Leng of Sunway University Business School expects that overall consumer spending will take a sharp but short term hit due to income losses, job and salary cuts and economic uncertainties caused by the pandemic. 

Recent news reports of burger seller Mohd Asri Hamid’s exposé on the illegal cigarette trade and gambling dens within his community is just one example of how pervasive black market trading is in the country.

The World Economic Forum estimates that over US$2.2 trillion (RM9.2 trillion) or three per cent of the global Gross Domestic Product will be lost to illicit trade leakages in 2020. 

According to Euromonitor International’s recently published white paper, “Illicit Trade in Times of Coronavirus”, the increasing demand for illicit goods by consumers is due to factors such as lower price points, decline in government enforcement as well as black market traders switching to e-commerce channels, where consumers are now shopping. 

“Amidst the expected uptick in retrenchments and heightened job insecurity, households tend to be more cautious in spending while increasing savings as a buffer against economic uncertainties. 

“Cost-conscious and low-income households may opt for cheaper products or substitutes including generic and black-market products. 

“Given that the threat of contraband and counterfeit products to established brands and genuine products may rise in the post-Covid environment, the authorities would have to be more vigilant,” added Yeah. 

He said authorities may need to mount more frequent campaigns against such black market products. 

“There is also a need to increase consumer awareness programmes in collaboration with the various non-governmental consumer movements in the country.”

High excise tax on selected goods is also one of the key factors favouring illicit trade during the pandemic. 

To avoid further gains from black market players, there must be immediate and effective action by society, government and businesses.

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