This article first appeared in The Edge Malaysia Weekly on October 8, 2018 - October 14, 2018

NO one will dispute the fact that sufficient revenue will keep the country running like a well-oiled machine. Sin tax — imposed on tobacco, alcohol and gaming — unfortunately always finds itself at the top of people’s minds whenever there is mention of raising taxes as budget day approaches each year.

Before Budget 2019 is tabled early next month, we take a look at the collection from the sin tax in the last seven years.

If we drill down, the import and excise duties collected from tobacco and alcoholic beverages in 2017, according to the Ministry of Finance’s revised revenue numbers, amounted to RM6.03 billion. This was about 10% of the total indirect tax revenue of RM60.5 billion.

It is difficult to gauge the exact amount of taxes collected from the gaming industry. The closest indication is Bank Negara Malaysia’s data, which shows that other indirect tax for 2017, including betting, sweepstakes and gaming tax as well as collection of revenue without codes, amounted to RM3 billion. Assuming that most of the other indirect tax came from the gaming industry, the tax on gaming was 5% of total indirect tax revenue.

As the charts illustrate, raising the sin tax has not reaped a revenue amount that is equivalent to the tax increase. This is especially apparent in the tobacco industry, which saw an increase in excise duty for three consecutive years from 2013 to 2015.

Excise duty on tobacco was raised by 14% in 2013, 12% in 2014 and a whopping 40% in 2015. Despite the steep increase in excise duty in 2015, the revenue collected from tobacco products that year contracted 3%. However, there was a small growth in revenue from the excise duty in 2016 and 2017.

It is noteworthy that tobacco players have put the market share of contraband cigarettes at 58.3%.

Alcohol and gaming have had it easier in the last seven years. No revision has been made to the 8% tax to be paid by the gaming industry. Pool betting duty is 8% while 10% of pre-tax profit has to be contributed to the National Sports Council. This comes on top of the corporate tax rate.

The calculation of excise duty on alcoholic beverages was simplified in March 2016 to be based on the alcohol content per litre of the product. The excise duty on beer stands at RM175 per 100% volume per litre, resulting in a 10% increase in the price of beer.

Nevertheless, it is worth noting that the excise duty on beer in Malaysia is the third highest in the world.

Some parties say raising the sin tax is not to increase the tax revenue but to curb societal problems and improve the health and well-being of society. But others argue that those who cannot afford to drink, smoke or gamble through legal means will naturally be motivated to find alternatives in the black market. This can be seen from the high market share of contraband cigarettes and the recent cases of alcohol poisoning that resulted in 40 deaths in the country.

“Until enforcement is tightened, the government will have to be careful about increasing the sin tax further. Otherwise, people will just resort to alternatives at the end of the day,” says a market observer.

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