Sin tax revision aims to bolster public health

PETALING JAYA: The government’s move to raise the sin tax under Budget 2026 has drawn concern from industry players, who warn it could worsen the flow of illicit products and undermine revenue collection despite the policy’s public health intent.

Effective Nov 1, 2025, the excise duty on cigarettes will increase by two sen per stick, while duties on cigars, cheroots and cigarillos will rise by RM40 per kg, and on heated tobacco products by RM20 per kg of tobacco content.

The government also announced an additional 10% hike in excise duty on alcoholic beverages.

While the move supports the national agenda to reduce smoking prevalence and promote healthier lifestyles, industry groups said its success will depend on stronger enforcement to curb illicit trade.

“Prevention is better than cure,” Prime Minister Datuk Seri Anwar Ibrahim said during his Budget 2026 speech, but observers noted that prevention must begin with curbing the illicit trade that undermines both public health and revenue goals.

An industry observer noted that higher cigarette prices would likely fuel demand for illicit tobacco, which already accounts for a substantial portion of Malaysia’s market.

“Increasing excise will only invite more illicit products,” the observer said, adding that stronger enforcement must accompany any tax increase to avoid eroding legitimate sales.

According to the Confederation of Malaysian Tobacco Manufacturers’ Illicit Cigarettes Study, illicit cigarettes accounted for 55% of the market, continuing a downward trend from the peak of 63.8% in 2020.

Meanwhile, the Confederation of Malaysian Brewers Bhd or CMBB, which represents Heineken Malaysia Bhd and Carlsberg Brewery Malaysia Bhd, expressed “regret” over the government’s decision to raise the alcohol excise rate by 10%, resulting in a new rate of RM192.50 per litre of 100% alcohol by volume, up from RM175 previously.

The rise, the group said, will impact an industry that generates RM7.1bil annually, contributes RM3.3bil in tax revenue, and supports over 52,000 jobs across its supply chain.