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The government may have been aware of the possible consequences in hasty cigarette tax hikes. It decided tax hikes were necessary to meet its budget deficit target. “As per the trends of past years, there is usually a surplus to offset the deficit from the first half, in turn keeping the deficit within the target,” said Lee Heng Guie, executive director of Socio-Economic Research Centre. Malaysia achieved its budget deficit target of around 3% despite billion-dollar losses in oil revenue. Together with cost-cutting measures, sin tax made up for any shortfalls in revenue. The cigarette industry holds the second place in terms of total excise collection, which contributes significantly to indirect tax ( 22.9% of the 2017 Federal Governmental budget). Additionally, the government has failed to control its illegal cigarette trade. The responsibility of clamping down on illicit cigarette trade falls on the shoulders of Royal Malaysian Customs Department (RMC). RMC failed to meet its aim of cutting illegal cigarette consumption to 25% by 2015 . This year, Subromaniam said , “The department aims to reduce the number of contraband cigarettes in the domestic market by 50 per cent in two years, but we are confident we can do better.” This confidence came with a call for harsher policy changes. Instead of fines up to 20 times the value of the contraband cigarettes or a maximum of three years jail term or both , the Customs Department has proposed a change to Section 135 (1) (d) of the Customs Act 1967.
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