GEG could put at risk 2,700 jobs, RM346m in GDP and RM1.2b in tax leakages

KUALA LUMPUR, 6 OCTOBER 2023 – There could be a RM346 million loss in Gross Domestic Product (GDP) contribution by 2040 if the Generational End Game (GEG) policy is implemented, according to a major new study released today by Oxford Economics, a leading research and analyst firm.

The potential loss of economic activity from the tobacco sector and its supply chain could also result in the loss of over 2,700 jobs in the formal economy and an additional RM1.2 billion in annual tax leakages due to illicit trade by 2040. 

Oxford Economics further noted that the actual value of losses could be even larger as the figures in the report do not take into account the contribution of the newly legal vaping industry in Malaysia. 

GEG Risks and Leakages

The Oxford Economics study points out that illegalising vaping could put at risk the sector’s potential tax contribution, estimated at RM 1 billion per year. 

The report also indicated that the implementation of the GEG policy could result in further growth in the illicit tobacco and vaping markets, as Malaysia has one of the largest illicit tobacco problems globally.  It is estimated that an additional 1.2 billion illicit cigarettes could be consumed annually in 2030 due to the measure, in a scenario in which consumers affected by GEG switch to illicit alternatives, compared to if the GEG policy is not implemented. 

Oxford Economics in the report suggested that while the GEG policy is a bold idea, there needs to be a robust analysis of the potential risks, especially where there are uncertainties surrounding the policy enforcement, and the complex trade-offs of cost and benefit resulting from the implementation of the GEG policy.

Robust assessment must be done into the potential costs, benefits and risks that could happen. 

The report highlighted three possible outcomes of implementing GEG, out of which Outcome 3 was noted to be most plausible. 

Possible Outcomes of the GEG

Outcome 1: The GEG policy has the intended effect of eliminating the consumption of legal tobacco and vaping products for people born in or after 2007, provided enforcement is rigorous.

Outcome 2: The GEG policy does not have the intended effect due to a lack of enforcement of the policy which leads to no change in the consumption of tobacco and vaping products for people born in or after 2007 and the GEG cohort will continue to consume legal, tax-paid products and illicit tobacco / vaping products in the same way as they do today.

Outcome 3: The GEG policy does not have the intended effect due to a lack of enforcement of the policy and the GEG cohort will fully switch their consumption to illicit tobacco and vaping products.

The report also recommended some essential considerations for the Malaysian authorities, while assessing the feasibility of the GEG policy prior to implementation such as the costs and complexities of enforcement and the impact on public health goals under poor enforcement scenarios, the likelihood of GEG cohort consumers switching to illicit tobacco products under a GEG policy environment and the economic losses implied by consumer switching via lost tax revenues, damage to industry revenues and knock-on effects to other industries, the wider socio-economic impacts of illicit trade in tobacco products and the implications of the GEG policy if it leads to an increase in illicit consumption and the distributional impact of the GEG policy on prices and household purchasing power and the implications of price effects for other unintended dynamics, such as consumer switching to illicit goods.

Download the full report here:  Oxford Economics