KUALA LUMPUR, 8th August 2025 – As the government considers raising tobacco taxes in Budget 2026, the Consumer Choice Center urges policymakers to adopt a more effective and science-based approach. Risk-based taxation, where nicotine products are taxed according to their level of health risk, offers a practical solution that supports public health while avoiding unintended consequences such as the growth of the black market or barriers to harm reduction.
Tarmizi Anuwar, Malaysia Country Associate at the Consumer Choice Center, stated that while reducing non-communicable diseases is commendable, a uniform tax on all tobacco and nicotine products may do more harm than good. “We support the government’s health goals, but applying the same tax to cigarettes, vaping products, and other reduced-risk alternatives is counterproductive. Taxation should reflect relative harm so smokers are encouraged to switch to safer products,” he said.
Malaysia already faces a significant challenge from the illicit tobacco trade. High excise rates on cigarettes have long pushed many consumers, particularly those in lower income groups, toward cheaper, unregulated products. Between 2002 and 2010, legal cigarette sales in Malaysia fell by 31 percent, from 19.5 billion to 13.5 billion sticks. During the same period, illicit consumption surged to 8.8 billion, pushing the black market share from 21 percent to 39 percent of total sales.
The experience of other countries provides essential lessons. In Australia, one of the countries with the highest tobacco taxes in the world, economists and public health experts have warned that continued tax hikes have failed to reduce smoking prevalence and instead have expanded the black market.
The Guardian reported in June 2025 that the policy may have reached a tipping point, enriching criminal networks while producing diminishing public health returns. Since then, calls have been made for the government to freeze further excise increases and focus on reducing illicit trade and promoting access to safer alternatives.
In contrast, countries that have embraced risk-based taxation are seeing positive outcomes. In Sweden, lower taxes on snus, a smokeless tobacco product, have helped bring smoking rates to under 5 percent. Sweden now records 41 percent fewer tobacco-related cancer cases and 44 percent lower tobacco mortality compared to the European Union average. Rather than punishing all nicotine use, Sweden encourages smokers to switch to less harmful options, and the results are precise.
New Zealand followed a similar path by reducing the excise tax on heated tobacco products by 50 percent in 2024 to support its national smoke-free goal. The measure was made permanent in 2025. This bold step was based on the understanding that tax incentives for reduced-risk products can support smokers looking for practical alternatives to combustible cigarettes.
Tarmizi explained that Malaysia can learn from both successful and unsuccessful global examples. “The experiences of Australia, Sweden, and New Zealand show that the structure of taxation matters. We get better public health outcomes if we design a tax policy that supports switching. If we over-rely on punitive measures, we risk pushing people into the black market and losing control over the system,” he said.
At the regional level, policy inconsistencies are already impacting. The ban on e-vaporizers in Singapore and Thailand has contributed to cross-border smuggling of vaping products from Malaysia, one of the largest producers of e-vapor devices in the world. Similarly, significant price differences between countries such as Malaysia and Indonesia create financial incentives for illicit trade that undermine national regulation and tax collection.
“Malaysia should not repeat these mistakes,” Tarmizi added. “We need to build a system based on science that protects consumers and does not unintentionally support criminal networks. Risk-based taxation is not about removing regulation. It is about improving it.”
The Consumer Choice Center recommends that the government implement a tiered taxation model under Budget 2026. Products such as vapes, heated tobacco, and nicotine pouches which have lower risk should have a lower tax than combustible tobacco products. This structure would encourage adult smokers to make healthier choices without compromising public revenue or regulatory control.
As Malaysia seeks to modernise its health system and address the burden of smoking-related diseases, risk-based taxation offers a responsible and forward-looking path. It aligns with international best practices while responding to local challenges.
“Taxation should support public health, not undermine it,” Tarmizi concluded. “By adopting a balanced and science-driven approach, Malaysia can lead the way in creating policies that protect both consumers and the integrity of our public institutions.”
