Move comes amid concerns over cigarette smuggling and counterfeit tax stamps, which cost nation billions in lost revenue annually
KUALA LUMPUR: In a major crackdown on illicit tobacco trade, Malaysia will fully enforce a new digital cigarette marking system next year as authorities move to replace physical tax stamps with a track-and trace mechanism aimed at tightening control over the legal supply chain.
The move comes amid mounting concerns over rampant cigarette smuggling and counterfeit tax stamps, which continue to cost the country billions of ringgit in lost revenue annually.
Customs Import, Export and Border Control Branch division deputy director Muhammad Nazim Dzul Fakar said the system’s implementation began in April, with the current physical tax stamp mechanism to remain in use until Dec 31 during the transition period.
“Full enforcement will begin next year. We are moving from the normal tax stamp attached to cigarette boxes to digital marking,” he said during a forum on “Illicit Cigarettes in Malaysia: Policy, Enforcement and Multi-Agency Solutions” yesterday.
“Digital marking will be applied at the production site. Through the track-and-trace system, we will be able to monitor movement from factories to distributors, then to retailers and finally consumers.” Nazim added that the technology was sourced from Denmark.
He said consumers would also be able to verify cigarette products through a dedicated app expected to be introduced together with full enforcement next year.
He added that the initiative was not intended to encourage smoking but to help the public distinguish legitimate products from illicit ones, especially amid growing concerns over fake tax stamps.
“Consumers will also be able to use the app.”
He said enforcement would be jointly overseen by Customs and the Finance Ministry. On May 1, theSun had reported that illicit cigarettes accounted for 56.7% of total cigarette consumption in January resulting in an estimated RM4 billion in lost government revenue, according to Japan Tobacco International (JTI) Malaysia.
The company also revealed that counterfeit tax stamps nearly doubled from 8.7% in 2023 to 16% in January, with syndicates increasingly investing in fake tax stamps and sophisticated cross-border supply chains.
JTI Malaysia head of external affairs Mohamad Selamat Tan said digital tax markings would strengthen enforcement by enabling authorities to trace cigarette stock movement throughout the legal supply chain, from manufacturing, importation to local distribution.
Nazim said smuggling syndicates continued to exploit legal import channels through false declarations, including disguising cigarettes as tissue products, fabric and other goods with similar weight profiles.
He said smugglers also attempted to evade container scans by lining containers with materials such as bricks while concealing cigarettes in the centre.
“We have also uncovered export furniture with cigarettes hidden inside. When the furniture was pulled apart, cigarettes came out almost like a machine.
“The more professional method is to make declarations appear normal.
If Customs officers do not inspect them carefully, the shipments may slip through.”
Nazim said Customs relied on profiling, intelligence gathering, public tip-offs and red flags such as first-time importers, suspicious company profiles and forwarding agents with prior records.
He cited a previous Malaysian Maritime Enforcement Agency case involving a smuggling boat fitted with five high-powered engines that enabled syndicates to move swiftly through the Straits of Malacca at night before disappearing into mangrove areas.
“The boat itself is already valuable. One engine can cost between RM10,000 and RM20,000, and if they instal five engines, that is already a huge investment. But they are still willing to abandon the boat because the value of the goods being smuggled is far higher.”
