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TUESDAY | MAY 19, 2026

Illicit cigarettes cost M’sia RM11.5b over past two years

PETALING JAYA: Malaysia lost an estimated RM11.5 billion (US$2.5 billion) in government revenue to the illicit tobacco trade over the past two years, the second-highest loss among the Asean-6, according to a report released yesterday by the EU-Asean Business Council (EU-ABC) and Euromonitor International. The findings show that Malaysia recorded the highest illicit cigarette market share in the Asean-6, with 57% of cigarettes sold in 2025 believed to be illicit – making it the only assessed market in the region where illicit cigarette sales exceed legal sales. The report highlights significant growth in the region’s illicit tobacco market, with illicit operators continuing to record rising year-on year profits, depriving governments of much needed tax revenue and diverting demand away from legitimate businesses. This comes as Southeast Asia faces economic and supply chain shocks driven by the Middle East crisis, which has placed government budgets under severe pressure and public scrutiny, raising concerns about the region’s economic resilience. Against this backdrop, the report highlights illicit trade as a strategic risk to Asean’s growth ambitions. Indonesia recorded the highest government revenue loss among the Asean-6 at US$5.6 billion, followed by Malaysia and the Philippines at US$2.5 billion each. Across the Asean-6, illicit tobacco resulted in a total of US$13.1 billion in lost government revenue over the past two years. The illicit tobacco market across the Asean-6 generated an estimated US$12.6 billion in revenue over the past two years (2024-2025), with illicit cigarette sales growing by 14% and illicit e-vape sales by 24% in the past year alone. Malaysia’s illicit e-vape market generated an estimated RM1.7 billion (US$ 365 million) in 2025 – the highest among the Asean-6 – with illicit e-vapes accounting for 67% of e-vapes sold. Demand for illicit tobacco is driven by lower prices and growing accessibility of illicit products, while supply is facilitated by Asean’s extensive and interconnected trade routes and uneven supply chain controls, which com plicate customs enforcement. Illicit cigarettes and e-vapes are largely produced within the region in Indonesia, Cambodia with additional supply from China, while Malaysia, Singapore and Vietnam are key distribution hubs. These findings represent only a fraction of the broader illicit trade challenge facing the region. An earlier EU-ABC report estimated Asean’s wider illicit trade market at US$35 billion. “The scale of illicit trade across Asean is often sorely underestimated – and, more worryingly, growing at an alarming pace. Its impacts are wide-ranging, spanning economic, public health and security challenges. If left unchecked, illicit trade could jeopardise Asean’s economic future as a global growth engine,” said EU-ABC executive director Chris Humphrey. The report notes that illicit cigarettes and e vapes comprise a significant portion of the illicit tobacco trade in Southeast Asia. While illicit

reducing the wider economic benefits generated by legitimate businesses through employment, taxation and investment. “Not only does this create unfair com petition, the presence of illicit trade also undermines supply chain integrity, signalling weaknesses in regulatory and law enforcement. Over time, this could diminish Asean’s attract iveness to foreign investors and legitimate businesses,” said Humphrey. Beyond economic impact, the report highlights health and security risks linked to illicit tobacco. Illicit products expose consumers to higher levels of toxic chemicals and heavy metals, while revenue gained from illicit sales fuels organised crime and other illegal activities. In a paper published in February, the council outlined a blueprint for illicit trade prevention under the Philippines’ 2026 Asean chairship, emphasising stronger regional cooperation and more flexible mechanisms. “Illicit trade is a regional problem that demands a regional solution,” said Humphrey. The paper called for the bloc to strengthen institutional coordination through a consolidated, multistakeholder platform for intelligence sharing, joint action, commitment imple mentation and public-private collaboration. To achieve this, the paper notes that rather than creating new institutions, Asean could enhance existing cooperation mechanisms under strategic trade management and customs frameworks, building on joint customs control initiatives and ongoing capacity building efforts. This consolidated platform could then be concretised through a proposed Asean Leaders’ Declaration on Preventing Illicit Trade and Diversion. Other recommendations in the paper included aligning policy and regulatory frameworks across Asean for supply chain oversight, leveraging digital and artificial intelligence tools for customs monitoring and enforcement, and increasing structured colla boration with the private sector and Asean’s dialogue partners for intelligence sharing and capacity building. Humphrey said: “Illicit trade has been allowed to fester in Asean for far too long, giving rise to painful consequences for the region’s communities and economy. “While we cannot take back what has been lost, we must act quickly and decisively to protect government revenues, strengthen supply chain integrity and safeguard Asean’s economic resilience. Asean’s economic future hangs in the balance.” Abu Bakar highlighted that over the past 10 years, bilateral trade between the two countries saw an estimated compound annual growth rate of about 7.8%, with consistent year-on-year (y-o-y) expansion despite global economic uncertainties. The most notable surge was observed in 2022 when bilateral trade grew by 29.2% y-o-y, driven by the strong rebound in global demand and improved supply chain activity. He added that this sustained upward trajectory underscores the resilience of Malaysia’s economic ties, alongside increasing diversification across key sectors such as E&E, chemicals, machinery and high-value manufacturing. – Bernama

o Black market’s share in 2025 reaches 57%, only country among Asean-6 where illegal sales exceed legal ones: Report

Humphrey (left) and Firdaus during a question-and-answer session at the release of the report by the EU Asean Business Council and Euromonitor International.

consulting for Apac at Euromonitor Inter national. “Sellers can quickly shift between platforms, communication channels and delivery networks to evade detection.” In addition, weak supply chain controls facilitate the flow of illicit tobacco within the region. Track-and-trace systems – widely regarded as an international best practice for illicit trade prevention – are decentralised and unevenly applied, making customs enforce ment more difficult. The report illustrates the outsize fiscal impact of illicit trade on Asean’s developing economies, draining billions in government revenue that could otherwise support infrastructure, education, healthcare, green investment and other priorities critical to economic development. “The effects are particularly severe at a time when the region is already facing economic pressures and supply chain disruptions linked to the Middle East crisis,” Humphrey said, adding that revenue lost to illicit trade reduces the fiscal space available for relief and mitigation measures, while illicit networks continue to exploit weaknesses in regional supply chains. The report further notes that illicit tobacco diverts revenue away from the formal economy,

cigarette growth is expected to decline over the next three years, illicit e-vapes will see faster growth at nearly 9% each year, up from around 7% in previous years. Illicit cigarettes are largely produced within Southeast Asia in Indonesia and Cambodia, with additional supply from China. Illicit networks exploit free trade zones (FTZ) in the region to avoid customs duties and regulatory scrutiny, by moving goods in small fishing vessels. Ports within FTZ are known to be hotspots for illegal smuggling, including Port Klang (Malaysia); Subic Bay Freeport Zone (the Philippines); Laem Chabang Port (Thailand) and Sabang, Batam (Indonesia). Illicit e-vapes are mostly imported from China and easily disguised as retail goods for e commerce orders due to their compact size and individual packaging. Online platforms have become a key enabler of the illicit tobacco trade, as sales of illicit cigarettes and e-vapes are often conducted through encrypted chat messengers and social media marketplaces. Transactions are frequently completed offline, usually in cash. “The decentralised nature of online sales makes it hard to crack down on illicit tobacco operations,” said Firdaus Muhamad, head of

We’re finalising free trade pact with South Korea: Matrade CEO KUALA LUMPUR: Malaysia is looking forward to the conclusion of the Malaysia-Korea Free Trade Agreement (MKFTA), which is seen as a platform to deepen trade linkages between the two countries. Malaysia External Trade Development Corporation (Matrade) CEO Abu Bakar Yusuf said Malaysia is in the process of finalising the agreement, which is expected to be concluded by this year or next. countries even further. “Matrade is looking at this platform as a tool for us to enhance our market access into Korea in various sectors, including medical and health, electrical and electronic (E&E), as well as the fast moving consumer goods,” he told Bernama. that last year, total trade between Malaysia and South Korea rose by 14.2% to US$27.42 billion (RM128.8 billion). He said Malaysia’s exports to Korea remained stable at US$12.31 billion (RM57.86 billion), while imports from Korea increased to US$15.11 billion (RM71.02 billion).

He said this on the sidelines of the Asean-Korea Trade Facilitation Mission to Malaysia, organised by the Asean-Korea Centre, the inter governmental organisation in charge of promoting economic and socio-cultural cooperation between South Korea and the 10 Asean member states. In his opening remarks, Abu Bakar highlighted

“Malaysia’s export strengths continue to be anchored by E&E products, particularly integrated circuits and semiconductor devices, which play a critical role in global supply chains. “Liquefied natural gas also remains a key pillar, further reinforcing Malaysia’s position as a reliable energy partner to Korea,” he said.

“Malaysia has continued to record strong trade performance with South Korea, registering double-digit growth in both total trade and exports last year ... this MKFTA platform will drive the growth of trade volume between the two