Cigarettes demand and tax strategy in Malaysia
Taxation is one of the effective tools to discourage smoking. Increase of cigarette tax has a significant effect in generating additional revenue to the government due to the inelastic nature of the cigarette. In this study, the estimated price elasticity of demand for cigarettes in Malaysia is -0.2...
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| Format: | Article |
| Language: | English |
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Universiti Putra Malaysia Press
2013
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| Online Access: | http://psasir.upm.edu.my/id/eprint/30860/ http://psasir.upm.edu.my/id/eprint/30860/1/Cigarettes%20Demand%20and%20Tax%20Strategy%20in%20Malaysia.pdf |
| _version_ | 1848846798133657600 |
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| author | Mohamed Nor, Norashidah Raja Abdullah, Nik Mustapha Y., Mastura |
| author_facet | Mohamed Nor, Norashidah Raja Abdullah, Nik Mustapha Y., Mastura |
| author_sort | Mohamed Nor, Norashidah |
| building | UPM Institutional Repository |
| collection | Online Access |
| description | Taxation is one of the effective tools to discourage smoking. Increase of cigarette tax has a significant effect in generating additional revenue to the government due to the inelastic nature of the cigarette. In this study, the estimated price elasticity of demand for cigarettes in Malaysia is -0.28 and -0.49 in short run and long run; respectively. Hence, demand for cigarettes is inelastic or less responsive to the changes in price. Therefore, estimating the optimal cigarette tax rate is one of the strategies to ensure that the price of cigarette, after
tax, is high enough to reduce consumption of cigarette. At the same time, it generates maximum tax revenue for the government. Using yearly time series data from 1980 until
2009, a Fully Modified Ordinary Least Square (FMOLS) method is applied to estimate the demand elasticity of cigarettes and the optimal cigarettes excise tax. In this study, the
estimated optimal real excise tax rate is 0.186 sen per stick which is 27.4% higher than the real excise tax in 2009. The increase in real revenue earned after imposing an optimal excise tax is 24.25% in the short run and 21.89% in the long run. Consequently, the expected reduction in consumption per capita of cigarette is 10.41% in the short run and 12.88% in the long run. Maximum revenues from the optimal cigarettes tax can be earmarked to fund a specific tobacco control policy in Malaysia. |
| first_indexed | 2025-11-15T09:08:26Z |
| format | Article |
| id | upm-30860 |
| institution | Universiti Putra Malaysia |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-15T09:08:26Z |
| publishDate | 2013 |
| publisher | Universiti Putra Malaysia Press |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | upm-308602015-09-21T01:14:18Z http://psasir.upm.edu.my/id/eprint/30860/ Cigarettes demand and tax strategy in Malaysia Mohamed Nor, Norashidah Raja Abdullah, Nik Mustapha Y., Mastura Taxation is one of the effective tools to discourage smoking. Increase of cigarette tax has a significant effect in generating additional revenue to the government due to the inelastic nature of the cigarette. In this study, the estimated price elasticity of demand for cigarettes in Malaysia is -0.28 and -0.49 in short run and long run; respectively. Hence, demand for cigarettes is inelastic or less responsive to the changes in price. Therefore, estimating the optimal cigarette tax rate is one of the strategies to ensure that the price of cigarette, after tax, is high enough to reduce consumption of cigarette. At the same time, it generates maximum tax revenue for the government. Using yearly time series data from 1980 until 2009, a Fully Modified Ordinary Least Square (FMOLS) method is applied to estimate the demand elasticity of cigarettes and the optimal cigarettes excise tax. In this study, the estimated optimal real excise tax rate is 0.186 sen per stick which is 27.4% higher than the real excise tax in 2009. The increase in real revenue earned after imposing an optimal excise tax is 24.25% in the short run and 21.89% in the long run. Consequently, the expected reduction in consumption per capita of cigarette is 10.41% in the short run and 12.88% in the long run. Maximum revenues from the optimal cigarettes tax can be earmarked to fund a specific tobacco control policy in Malaysia. Universiti Putra Malaysia Press 2013-09 Article PeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/30860/1/Cigarettes%20Demand%20and%20Tax%20Strategy%20in%20Malaysia.pdf Mohamed Nor, Norashidah and Raja Abdullah, Nik Mustapha and Y., Mastura (2013) Cigarettes demand and tax strategy in Malaysia. Pertanika Journal of Social Sciences & Humanities, 21 (spec. Sep.). pp. 99-114. ISSN 0128-7702; ESSN: 2231-8534 http://www.pertanika.upm.edu.my/Pertanika%20PAPERS/JSSH%20Vol.%2021%20%28S%29%20Sep.%202013/07%20Page%2099-114.pdf |
| spellingShingle | Mohamed Nor, Norashidah Raja Abdullah, Nik Mustapha Y., Mastura Cigarettes demand and tax strategy in Malaysia |
| title | Cigarettes demand and tax strategy in Malaysia |
| title_full | Cigarettes demand and tax strategy in Malaysia |
| title_fullStr | Cigarettes demand and tax strategy in Malaysia |
| title_full_unstemmed | Cigarettes demand and tax strategy in Malaysia |
| title_short | Cigarettes demand and tax strategy in Malaysia |
| title_sort | cigarettes demand and tax strategy in malaysia |
| url | http://psasir.upm.edu.my/id/eprint/30860/ http://psasir.upm.edu.my/id/eprint/30860/ http://psasir.upm.edu.my/id/eprint/30860/1/Cigarettes%20Demand%20and%20Tax%20Strategy%20in%20Malaysia.pdf |