Finance minister Tengku Zafrul Aziz has once again proposed raising the country’s statutory debt limit to 65% from the current 60%. The proposal underscores the dire financial health the country is in.
Having introduced a slew of financial aid packages like Prihatin, Penjana and Pemulih to the tune of RM530 billion over the past 18 months, it is no surprise that the government is now looking for ways to replenish its fast-depleting reserves.
The country is at a stage where every bit of revenue counts, with Covid-19 showing little signs of abating as variants like Delta and the newer Mu, casting a long shadow over our economic recovery.
One low-lying fruit the government can consider to boost its revenue is to enhance the tax regiment for the vaping industry. Tengku Zafrul, when tabling the 2021 budget last year, announced that the government would be introducing a vape tax.
But at 40 sen per ml, the quantum is too low, especially with talk that the government will charge the same rate for vape liquid with nicotine and without nicotine.
In Malaysia, according to vape community estimates, at least 95% of the vape liquid being sold in the market contains nicotine. Cheap taxes mean the government will be collecting less revenue.
The Retail and Trade Brands Advocacy Malaysia (RTBA Malaysia) believes the government stands to gain an estimated tax revenue of more than RM300 million if current vape tax is implemented properly.
But even that figure is conservative by most estimates. A recent study suggests that there are vape liquids equivalent to 12.5 billion sticks of cigarettes available in Malaysia that are currently untaxed.
A Japan Tobacco International Bhd official was quoted as saying that the government stands to gain around RM5 billion in taxes if the vaping industry was subjected to a similar tax regime as that of cigarettes.
While it could be argued that the move by the finance ministry is a good start in encouraging people to switch from cigarettes to vape, when the vape taxes are low, the revenue to the government will drop significantly.
Malaysia’s excise duty of 40 sen per ml (US$0.096) for vape liquid is already one of the cheapest worldwide and is slightly less than half of the global average of around US$0.2 per ml. Just putting things into context, in neighbouring Philippines, it is around US$0.76 and in South Korea it is US$1.51 per ml.
Besides boosting government revenues, a steeper tax rate on vaping products also sends the right signal that the government discourages the habit.
Just as the government imposes “sin tax” on cigarettes and liquor to discourage the consumption of the items for health reasons, vape liquid should also fall under the same category.
Currently, the low tax on such items translates into cheaper prices for the products which will lead to an uptick in demand, especially among youths who view vaping as trendy and affordable.
My nephews and nieces in their late teens and early 20s are hooked on these sleek devices and blowing nice-smelling mushroom clouds at home, even at the dinner table.
Parents who may not know much about these tech gadgets may welcome the mango lassi smelling vapour which complements the lamb briyani from the kitchen.
And on top of having a generation of vapers who may suffer debilitating long-term health effects, the government also loses the opportunity to generate significant sums of revenue it badly needs to kickstart an economy ravaged by the pandemic.
Remember, the RM300 million in tax revenue collected is a paltry amount compared to billions that need to be forked out for potential healthcare spending to treat those who may suffer declining health due to this habit.
A lower risk to health than cigarettes does not mean there is no health risk involved in vaping.
While we must applaud the finance ministry for thinking of a new revenue stream, there is a great disconnect between the government’s revenue goals and promoting a harmful habit.
The ministry must be bolder in setting its vape liquid tax rate. Apart from establishing a new revenue stream, it must also consider the potentially burgeoning vaping phenomenon, and its social costs, especially among the youth.
Set a higher tax rate, send the right signal to the market and the nation. Do the right and responsible thing, and do not pander to industry lobbyists.
Let’s not let tax revenue from the vaping industry go up in smoke.