The Black Market is Hurting Malaysia’s Economy

Recouping lost taxes could help the Government spend more on SMEs, wage subsidies or food assistance. 

 

The black market is hurting Malaysia’s economy, leaking hundreds of billions of ringgits a year to criminal groups and resulting in huge tax losses for the Government.

This means less money is being spent on developmental projects and on the people who really need it.

Black market activities, whether it is the importing of illicit tobacco, contraband alcohol or the illegal drug trade, are evading essential taxes the Government relies upon to provide services, such as emergency assistance during COVID-19, wage subsidies or upgrading roads.

 

RM300 billion is lost from the Malaysian economy every year to black market activities.[1]

This is the equivalent of over a fifth of Malaysia’s GDP, meaning none of this money returns to the Government in the form of revenue. The illicit tobacco trade alone results in the loss of over RM5 billion a year in revenue.[2]

The Government needs revenue more than ever now, especially as businesses attempt to recover from the pandemic and protect jobs.

And the scale of the money lost is a problem that needs to be tackled urgently in order to bring the money back into the economy.

 

So what could the money lost to the black market be spent on if it was recovered?

If we look at one recent illicit tobacco seizure, it was reportedly worth RM21.07mil in unpaid duties and taxes.[3] Recouping the taxes from this seizure alone could pay for wage subsidies or cash aid to those who need it.

Whilst we can’t tackle the entire black market, recouping a small amount lost each year could go a long way to providing essential revenue for the Government. Even recouping between 5 to 10 per cent of the money lost to the economy would bring back up to RM30 billion in one year alone, which could be spent on further emergency assistance packages or wage subsidies.

Government support through stimulus packages and wage subsidies during COVID-19 – totaling at least RM260 billion[4] – has helped to keep many SMEs going and workers in their jobs.

Given the economic damage caused by COVID-19 and the need for many businesses to receive continued support from the Government to remain viable, tackling the black market and bringing even a fraction of the money back into the economy could help to save more businesses and help to keep people in their jobs.

 

Let’s keep businesses in business and people in their jobs by helping to stop the black market.

 

[1] Liam Guan Eng, former Minister of Finance, speech at the 40th Commonwealth Association of Tax Administrators Annual Technical Conference 2019.

[2] Oxford Economics, The Economics of the Illicit Tobacco Trade in Malaysia. 2019.

[3] The Star, ‘More than 30.1 million contraband cigarettes seized at North Port, three arrested’, 2 July 2020.

[4] The Malay Mail, ‘World Bank: Malaysia has little space for fiscal response if Covid-19 fallout drags on’ 22 April.