BACKGROUND: Cigarette smoking remains a significant public health challenge in Malaysia, contributing to substantial health and economic burdens. Despite the proven effectiveness of taxation in reducing cigarette demand, the last excise tax increment occurred in November 2015, with no subsequent restructuring. This stagnation has allowed cigarettes to remain affordable, undermining efforts to reduce smoking prevalence and its associated harms.
METHODS: This study calculates the Relative Income Price (RIP) index to evaluate cigarette affordability in Malaysia from 1990 to 2023. The study further estimates the price elasticity of cigarette demand and examines the relationship between RIP and cigarette sales using time-series data and the Autoregressive Distributed Lag (ARDL) method.
RESULTS: In Malaysia, cigarettes remain highly affordable, as demonstrated by the RIP index, which indicates that cigarette affordability in 2023 was just 3.2% of per capita GDP. The analysis of RIP trends reveals that affordability has remained consistently high over time. Additionally, the price elasticity of cigarette demand has increased compared to previous studies, influenced by the availability of substitutes, such as e-cigarettes, and the presence of illicit cigarette trade. The RIP coefficient on cigarette demand was found to be significant, highlighting affordability as another critical factor in sustaining cigarette demand, which should be considered in measuring the excise tax rate in Malaysia.
CONCLUSIONS: The findings emphasize the urgent need for the Malaysian government to implement consistent and substantial excise tax increases to make cigarettes unaffordable. Excise tax rates should be adjusted regularly, exceeding income growth and inflation, to ensure affordability decreases over time. In line with the World Health Organization (WHO) recommendation, excise taxes must also account for at least 75% of the retail price of cigarettes. Such measures will mitigate smoking-related health and economic burdens and align with Malaysia’s public health objectives.