Taxing legal vapes too heavily could strengthen black market, lawyer warns
PETALING JAYA: Budget 2027 must strike a balance between taxing legal vape products and preventing higher taxes from driving consumers towards cheaper illicit alternatives, said tax lawyer Datuk S. Saravana Kumar.
Saravana, who is a partner at RDS Partnerships and head of SST and Customs at RDS Advocates & Solicitors, said Malaysia needs a fair, transparent and enforceable tax framework for nicotine products, rather than relying on higher excise duties to boost revenue.
READ MORE: To vape or not to vape?
READ MORE: Association questions delay over total ban on vape
READ MORE: Viral video triggers concern over alleged mushroom vape abuse among youths
“The issue is not simply how much revenue vaping can generate.
“It is whether Malaysia has a coherent framework that treats nicotine products fairly, protects legitimate businesses and consumers and strengthens the government’s ability to combat illicit trade,” he said.
The government has collected RM354.51 million in excise duty from electronic cigarettes and vape liquids since 2023. Government figures showed that vape excise duty collections amounted to RM80.32 million in 2023, RM111.14 million in 2024, RM118.93 million in 2025 and RM44.11 million between January and June this year.
Saravana said the issue was particularly important as Malaysia continued to grapple with the regulation of vaping and the illicit nicotine market.
He said cigarettes and vape products were different and should not necessarily be taxed identically as they had different characteristics and consumption patterns.
However, he said legally available nicotine products should operate within a proportionate tax framework to prevent significant disparities between legal and illicit products.
He cautioned that wide differences in taxation could create unintended consequences by encouraging consumers to seek cheaper, unregulated alternatives.
“This can undermine legitimate businesses, erode tax compliance and make enforcement more difficult.”
Saravana said taxation must therefore go hand in hand with stronger enforcement, licensing, product standards and traceability measures.
“A higher tax rate on its own is not a solution,” he said, adding that making legal vape products significantly more expensive while illicit products remained readily available could inadvertently strengthen the black market.
He said Malaysia’s experience in tackling illicit cigarettes provided an important policy lesson, as taxation could not be considered separately from enforcement.
The issue comes amid renewed uncertainty over the regulation of vape products following the government’s decision to withdraw its appeal against a High Court ruling concerning the exemption of liquid nicotine from the Poisons List.
Saravana said the development had further highlighted the need for a coherent approach to the regulation, taxation and enforcement of nicotine products. The call for greater consistency in taxation has also been raised by lawmakers.
Wan Saiful Wan Jan has previously called for vape products to be taxed according to nicotine content, with the aim of ensuring greater consistency with cigarette taxation and closing loopholes that could encourage illicit trade.
Meanwhile, Social & Economic Research Initiative senior researcher Muhammad Daniel Kittu has highlighted the importance of effective enforcement in tackling illicit tobacco trade.
Saravana said the RM354.51 million collected in vape excise duty should not simply be viewed as revenue that could be maximised. He said fiscal policy should also take into account the wider public health and economic implications associated with vaping.
The Health Ministry has previously highlighted the healthcare costs associated with vape-related illnesses, underscoring the need for taxation to form part of a broader regulatory approach.
“Taxation is not merely a revenue-raising tool. It is one component of a broader regulatory framework,” he said.
Saravana said Budget 2027 should therefore consider whether Malaysia’s nicotine tax framework was fair, enforceable and capable of protecting government revenue without inadvertently strengthening the illicit market.
He said a well-designed vape excise framework, supported by stronger enforcement and appropriate regulatory controls, could provide greater consistency across nicotine products while giving authorities better tools to monitor the legal market and address illicit activity.
“The objective is not to promote vaping or favour it. It is to ensure that Malaysia’s approach to nicotine taxation reflects the market as it exists today while giving policymakers the tools to regulate it more effectively,” he said.
