After the SST Expansion: A Timely Push for Tobacco Taxes in the Upcoming Budget

Prepared by Muhammad Daniel Kittu

4th July 2025

From July 1st onwards, the government announced that the expansion of the sales and service tax (SST) rate, from 5% to 10%, will be applied to non-essential items. [1]. In response to public concerns, particularly over the cost of living and access to nutritious food, Prime Minister Anwar Ibrahim announced that imported apples and oranges will be exempt from the SST expansion [2]. While this measure is a welcome concession for consumers, SST still applies to many other healthy food products and nicotine gum used in smoking cessation [3], [4]. 

Given the government’s readiness to tax these goods, which are beneficial to public health, this offers an opportunity to highlight taxes on tobacco, particularly on cigarettes, which have not increased for the past 10 years [5]. This is concerning, especially with the rise of non-communicable diseases (NCDs) over the past decades in Malaysia, which are the main cause of death and disability in the country, according to the Ministry of Health (MOH) and the World Health Organisation (WHO) [6]. Given that smoking is a significant risk factor for NCDs [7], the next budget presents a timely and rational opportunity to prioritise increasing taxes on such harmful products. 

Tobacco Taxes Are Progressive But Have Been Underutilised

Moving forward, the government should pursue more progressive forms of taxation that not only raise revenue but also promote better public health outcomes. Progressive taxes are designed so that higher-income individuals bear a greater tax burden compared to those with lower incomes, helping to reduce inequality [8]. Malaysia can focus on underutilised policy tools that can both generate revenue and improve public health, starting with tobacco taxes.

Tobacco taxation is one such underutilised tool in Malaysia's fiscal and public health strategy. As the last tax hike on cigarettes was in 2015, cigarettes have become more affordable in real terms because income per capita has since risen [9]. This means less income is required to spend on the product. Malaysia does not have regular adjustments for tobacco taxes, which is not in line with the WHO’s recommendations for regular tobacco tax increases, factoring in inflation and income growth [5], [10]. There is still considerable room for improvement in tobacco tax rates, and failing to take action would be a missed opportunity.

Increases in tobacco taxes are progressive as low-income individuals are more sensitive to higher cigarette prices and, as a result, are more likely to reduce tobacco consumption compared to high-income individuals who are less price sensitive and consequently bear a higher tax burden [11], [12]. This is particularly important because the health and economic burdens of tobacco disproportionately fall on the poor, making tobacco taxation a powerful pro-poor intervention [11], [12]. As the B40 group in Malaysia relies heavily on the overstretched public healthcare system when falling ill [13], [14], the government should be concerned with the burden that tobacco consumption imposes on this vulnerable group. Reducing tobacco consumption through taxation can alleviate some of this pressure by lowering the prevalence of tobacco-related diseases. Hence, tobacco taxes are a crucial tool in the government’s toolkit for raising tax revenue and improving public health.

Tobacco Taxes: Low-Hanging Fruit for Health and Fiscal Gains

As Prime Minister Datuk Seri Anwar Ibrahim has said that expanding SST is a means to improve assistance and public services for Malaysians [15], taxes such as the tobacco tax provide an additional source of government revenue to achieve this goal. Tobacco taxation provides a “double dividend” as it discourages harmful tobacco consumption while generating much-needed revenue, which can be designated to fund healthcare services, public health initiatives, and smoking cessation programs, which increases the tax’s acceptability and helps build a healthier society. 

It is essential to recognise that while tobacco taxation on its own is not the sole solution to reducing tobacco consumption and improving public health, it is an effective policy that cannot be overlooked. This should be accompanied by other tobacco control measures, such as assisting to quit smoking and enforcing bans on tobacco advertising, promotion, and sponsorship, as part of a comprehensive strategy in line with the WHO Framework Convention on Tobacco Control [16]. Earmarking tobacco tax revenue would facilitate implementing these measures. 

Other forms of taxation, such as progressive income and wealth taxes, are also vital for funding public services, which benefit public health, as highlighted by a briefing paper by the United Nations University International Institute for Global Health [17]. However, as there have been delays with progressive taxes such as the luxury goods tax [18], it would be wise to increase tobacco taxes because it is largely seen as a low-hanging fruit for increasing revenue, and the majority of Malaysians support an increase in taxes on cigarettes according to a survey by Merdeka Centre [19]. 

Tobacco taxation is a proven, evidence-based policy that Malaysia has not leveraged over the past decade. As the government moves forward with expanding the SST, this presents a chance for the government to also increase tobacco taxes in the next budget, which is a progressive, pro-health measure that helps alleviate strain on the healthcare system and raises revenue that can be used for health and social development. In light of Malaysia’s rising NCD burden and the increasing affordability of cigarettes, increasing tobacco taxes are a low-hanging fruit the government can no longer afford to ignore.

References :

[1] C. W. Rou, “SST expansion to have minimal impact on SMEs, say economists,” Free Malaysia Today, Jun. 17, 2025. Available: https://www.freemalaysiatoday.com/category/nation/2025/06/17/sst-expansion-to-have-minimal-impact-on-smes-say-economists/. [Accessed: Jun. 18, 2025]

[2] E. Easwaran, “Imported apples, oranges exempted from expanded SST,” Free Malaysia Today, Jun. 26, 2025. Available: https://www.freemalaysiatoday.com/category/nation/2025/06/26/imported-apples-oranges-exempted-from-expanded-sst/. [Accessed: Jun. 26, 2025]

[3]CodeBlue, “SST Expansion Covers Most Healthy Foods, Nicotine Gum, Medical Cannabis,” CodeBlue, Jun. 13, 2025. Available: https://codeblue.galencentre.org/2025/06/sst-expansion-covers-most-healthy-foods-nicotine-gum-medical-cannabis/. [Accessed: Jun. 18, 2025]

Sales Tax (Rate of Sales Tax) Order 2025. Available: https://lom.agc.gov.my/act-view.php?type=pua&no=P.U.%20(A)%20170/2025&status=PRINCIPAL. [Accessed: Jun. 27, 2025]

[5] Southeast Asia Tobacco Control Alliance, “Malaysia,” SEATCA TOBACCO TAX PROGRAM, Nov. 29, 2022. Available: https://tobaccotax.seatca.org/malaysia/. [Accessed: Jun. 18, 2025]

[6] The World Health Organization and Ministry of Health Malaysia, “Direct Health-care Cost of Noncommunicable Diseases in Malaysia,” Malaysia, Singapore and Brunei Darussalam, 2022. Available: https://malaysia.un.org/en/194055-direct-health-care-cost-noncommunicable-diseases-malaysia. [Accessed: Jun. 18, 2025]

[7] The Tobacco Atlas, “Malaysia,” Tobacco Atlas, 2025. Available: https://tobaccoatlas.org/factsheets/malaysia/. [Accessed: Jun. 18, 2025]

[8] Tax Foundation, “Progressive Tax,” Tax Foundation, Jul. 27, 2020. Available: https://taxfoundation.org/taxedu/glossary/progressive-tax/. [Accessed: Jul. 02, 2025]

[9] M. D. Kittu, “Strengthening Malaysia’s Tobacco Control Through Tax Reform,” Social and Economic Research Initiative (SERI), May 2025. Available: https://www.seri.my/_files/ugd/539cff_274f7ec8d537406090a6c1babb4457b2.pdf

[10] World Health Organization, “Guidelines for implementation of Article 6 WHO Framework Convention on Tobacco Control,” World Health Organization, Jan. 2017. Available: https://fctc.who.int/resources/publications/m/item/price-and-tax-measures-to-reduce-the-demand-for-tobacco. [Accessed: Jul. 02, 2025]

[11] G. Spencer et al., “Equity implications of tobacco taxation: results from WHO FCTC investment cases,” Tobacco control, vol. 33, no. Suppl 1, May 2024, doi: 10.1136/tc-2023-058338. Available: https://pubmed.ncbi.nlm.nih.gov/38697660/. [Accessed: Jun. 23, 2025]

[12] P. Peretti-Watel, V. Seror, J. Constance, and F. Beck, “Poverty as a smoking trap,” The International journal on drug policy, vol. 20, no. 3, May 2009, doi: 10.1016/j.drugpo.2008.10.001. Available: https://pubmed.ncbi.nlm.nih.gov/19110409/. [Accessed: Jun. 23, 2025]

[13] A. Hakim, “Majority Of Malaysians Fully Dependent On Public Healthcare System,” TheRakyatPost, May 30, 2020. Available: https://www.therakyatpost.com/news/malaysia/2020/05/30/majority-of-malaysians-fully-dependent-on-public-healthcare-system/. [Accessed: Jun. 23, 2025]

[14] CodeBlue, “Poll: 95% Of Health Workers Say Malaysia’s Public Health Care System Is In Crisis Now,” CodeBlue, Jan. 30, 2023. Available: https://vgh.pth.mybluehost.me/2023/01/poll-95-of-health-workers-say-malaysias-public-health-care-system-is-in-crisis-now/. [Accessed: Jun. 23, 2025]

[15] M. Yusry, “‘We collect taxes to return them to the people’: PM justifies SST expansion, says Malaysians to benefit through welfare aid,” Malay Mail, Jun. 20, 2025. Available: https://www.malaymail.com/news/malaysia/2025/06/20/we-collect-taxes-to-return-them-to-the-people-pm-justifies-sst-expansion-says-malaysians-to-benefit-through-welfare-aid/181003. [Accessed: Jul. 02, 2025]

[16] World Health Organization, “WHO EMRO,” World Health Organization - Regional Office for the Eastern Mediterranean, 2025. Available: http://www.emro.who.int/tfi/mpower/index.html. [Accessed: Jun. 25, 2025]

[17] A. Cobham, K. Hujo, B. O’Hare, L. Nelson, and D. McCoy, “Tax systems and policy: Crucial for good health and good governance,” United Nations University International Institute for Global Health. Available: https://collections.unu.edu/eserv/UNU:10170/Tax_systems_and_policy.pdf. [Accessed: Jun. 23, 2025]

[18] A. Lai and F. Aziz, “‘Luxury tax’ deferred for now,” The Star, Mar. 28, 2024. Available: https://www.thestar.com.my/news/nation/2024/03/29/luxury-tax-deferred-for-now. [Accessed: Jun. 24, 2025]

[19] Merdeka Center for Opinion Research, “National Survey on Tobacco Related Issues 2025,” Merdeka Center for Opinion Research, Apr. 2025. Available: https://merdeka.org/download/national-survey-on-tobacco-issues-270525-final/?wpdmdl=77688&masterkey=tftJZXW4Q0wJgQ7uZNBGhEXijGZJCgHdZh_KVjdMqbwVUhg5kdPxsmaUVvFyFhV1Vox61wjm4Ah1Bt1fLOMdqYr3Ju9_X4h4X1K9Fk10aoA. [Accessed: Jun. 24, 2025]