Regulate us, steam trade gamers inform the federal government

THE vape industry has grown into a thriving business in Malaysia, accounting for 42% of the total tobacco market – outperforming that of illegal cigarettes (37%) and legal cigarettes (21%), a study by the Malaysian Vape Chamber of Commerce ( MVCC.)) In December 2020. However, to date there are no specific regulations for the sale and use of vapes and electronic cigarettes (e-cigarettes).

Vape players have been asking the government to regulate the industry for years. However, the sale of nicotine-containing vaporizer liquids and e-cigarettes remains illegal at the federal level, although they are openly sold and easily accessible.

According to Khoo Bee Leng, Managing Director of JT International Bhd (JTI Malaysia), there are currently no regulations for checking the substances used in vape liquids. “Most of the countries where vaping is regulated have pictorial health warnings [on the vape products], Ingredients [of the vape liquids] declared and the products will be tested, ”she said at a virtual media briefing last week.

She cited the use of diacetyl, a compound that gives vape liquids a buttery taste but is harmful to the body. “Diacetyl was banned as an ingredient in vape liquids in Europe and the USA. But since vape products are being brought into Malaysia illegally, mostly from China, we don’t know what substances are in them. “

That’s not all. The increasing use of vape and e-cigarette products by minors is becoming a problem for the industry, says Tengku Aslahuddin Ja’afar, president of the Vape Consumer Association of Malaysia (VCAM).

“VCAM strongly opposes any form of vapor consumption by underage consumers, regardless of whether they contain nicotine or not. However, this concern has made it tempting for policymakers to take the easy route of ignoring the problem or banning nicotine vaporization. Regulations can help ensure that nicotine vape products are only sold to adult consumers in a safe and legal manner, ”he told The Edge in an email interview.

“Promoting the accurate exchange of information by government agencies and regulating nicotine vaporizing are critical to ensuring proper use, so that vaping is better known as a tool for smoking cessation. Smokers who already buy nicotine vapes to quit can be assured of product safety when quality standards are implemented. Right now, consumers who buy nicotine vapes have no choice but to buy on the black market and the risks are real, ”he adds.

“The introduction of an age limit for vape purchases will also make it clear to retailers and the general public that vape products are not suitable for minors. Adequate regulation enables suppliers and retailers to commit to a more active role in preventing underage vaping through streamlined and detailed guidelines. “

Large tobacco companies like British American Tobacco (Malaysia) Bhd (BAT Malaysia) and JTI Malaysia also pushed for the government to legalize the vapor industry as they gradually pull out of the conventional cigarette business.

In 2018, Philip Morris (Malaysia) Sdn Bhd was the first of the three large tobacco companies to introduce a Reduced Risk Product (RRP) with its heat-not-burn (HNB) tobacco device called IQOS. It is understood that BAT Malaysia and JTI Malaysia are not yet required to bring RRP products to market while the regulations governing these new products are still being clarified.

On May 31st, Jonathan Reed, chief executive officer of BAT Malaysia, upon announcing the company’s first quarter results, said the company fully supports the creation of an adequate regulatory framework for nicotine vaporizing to ensure that consumers have regulated and taxed access to it Products. “Over a million Malaysian vapers are currently accessing products with unknown safety and quality standards,” he added.

“These supposedly harmless products in the form of e-cigarettes and vaporizers are currently technically illegal in Malaysia and therefore prevent BAT Malaysia from selling them on the Malaysian market. We believe that once vapes are legalized, they can help BAT Malaysia pursue a new revenue growth cycle and strengthen its long-term sustainability, ”said Kamarul Anwar Kamaruddin, analyst with CGS-CIMB Research, in a July 19 report.

According to Khoo, JTI launched the HNB product Ploom and the vape product Logic in countries such as Japan, South Korea, Europe and the United States. “In Malaysia, it’s about choosing the right product at the right time. I would say: ‘Hold on.’ “

What is it taking so long?

Khoo believes Malaysia will take longer to regulate the steam industry as it is a new segment of the tobacco business. “It’s a complicated process. It [involves] various substances that you use in vape liquids. So I think the government is likely looking into other markets to regulate the industry. You must also have systems and processes in place to test, monitor, and enforce the products [the regulations]. “

VCAM’s Aslahuddin cites MVCC’s study, which shows that the vape market currently includes more than 3,300 direct industry affiliates and employs over 15,000 people. Major vape sellers, distributors, and suppliers in the country include NCIG, RELX, Vape Empire, and The Vape 69.

“The vape industry has grown significantly since it was founded in Malaysia in 2011. The industry is currently valued at RM 2.27 billion and according to a study conducted by Grand View Research Inc., the global vaping market is projected to reach $ 67.31 billion (RM279.10 billion) by 2027 – with a Average annual growth rate (CAGR) of sales of 23.8% from 2020 to 2027. According to MVCC, we are experiencing a CAGR of 44% domestically, ”he says.

As for users, there are currently more than 1.12 million vapers in Malaysia, as reported in the 2019 National Health and Morbidity Survey conducted by the Ministry of Health. “The growth momentum is expected to continue as more and more smokers switch to vape products in the coming years,” says Aslahuddin.

Government wants to collect 250 million RM in taxes

Aslahuddin believes that legalizing and regulating the steam industry will also unlock a much-needed source of tax revenue for the country. “At 2.27 billion RM, the steam industry in Malaysia is too big to remain unregulated. It is in the nation’s best interests to quickly put appropriate regulations in place to help the Malaysian economy. Since its inception, it has already fostered the growth of entrepreneurs, many of whom are local businesses. “

He notes that counterfeit vape devices have already become a curse in the industry. “Devices that are not regulated can easily use inferior electronics that can be harmful to consumers, such as: B. defective or used batteries.

“Today, counterfeit vape juices are easy to find on the market. Although nicotine vape juices are currently illegal, vape juices that contain nicotine are common but do not have the correct nicotine dosage as stated on their labels. This is a predicament faced by many other industries and is not limited to just the steam industry. “

Khoo agrees, noting that illegal vape liquids are quickly becoming a national crisis, with the volume of nicotine liquids smuggled into Malaysia already equaling 12.5 billion cartons – almost double the number of legal cigarettes at 6.3 billion cartons Year 2020. This is based on the conversion that one milliliter of steam liquid corresponds to 20 cigarette cartons.

“According to Nielsen’s study of illegal cigarettes, illegal cigarettes made up 64% or two-thirds of total consumption last year. The number gets worse when you include vape liquids, which are basically illegal in Malaysia because they contain nicotine – we’re talking 79% of the market that is illegal, ”she points out.

“That means eight out of ten products [sold or consumed] in Malaysia are illegal. This is really very serious [problem].

“The government needs to consider whether all liquids used for vaping and sold in Malaysia will be taxed as an additional source of income. Currently, this growing category is not taxed, allowing it to be sold even below illegal cigarette prices, undermining the recovery of the legal cigarette industry, ”she adds.

According to JTI Malaysia, a 20 pack of legal cigarettes now costs between RM 12 and 17.40, while illegal brands cost RM 3 to 6 per pack. Vape liquids cost between 50 Sen and RM4.80 per milliliter.

“If you look at the excise tax currently levied on the respective nicotine products, the discrepancy is huge. For example, the tax on a pack of legal cigarettes is RM8. This means that for the cheapest pack of cigarettes (RM12), 67% of the price goes to excise duties. And we haven’t added the sales and service tax yet, which is another RM1, ”says Khoo.

“HNB products like IQOS are taxed at 4 RM per pack, while vape liquids without nicotine are taxed at 40 Sen per milliliter – 20 times less than legal cigarettes,” she adds.

“Assuming the current excise duty of 40 sen per milliliter on non-nicotine vape liquids, which we consider inappropriate, the government could generate around 200 to 250 million RM in tax revenue with the equivalent of 12.5 million sticks. But if it is [the tax] closer to RM 8, the government would gain around RM 5 billion – more than what legal cigarettes do annually, ”says Shaiful Bahari Mahpar, director of corporate affairs at JTI Malaysia.

In January the government introduced a 10% excise duty on all electronic and non-electronic cigarette devices. In addition, a consumption tax of 40 Sen per milliliter of steam liquid was levied.

Aslahuddin points out, however, that the tax framework only covers vape devices and non-nicotine vape liquids, which make up a small portion of the total vape market. “It doesn’t cover vape liquids with nicotine. Currently, the government has potential revenues of more than RM 300 million if it introduces more comprehensive regulations.

“The lucrative steam industry will only continue to grow as the number of players in the industry increases. By legalizing and enacting laws regulating vape products, authorities can ensure that these vape shops and manufacturers are appropriately certified to ensure that consumers are protected. “