Malaysia has suffered an estimated RM11.5 billion (US$2.5 billion) in government revenue losses due to illicit tobacco trade over the past two years, marking the second-highest loss among ASEAN-6 nations, according to a new report released by the EU-ASEAN Business Council and Euromonitor International.
The report revealed that Malaysia recorded the highest share of illegal cigarette sales in the ASEAN-6 region, with an estimated 57 per cent of cigarettes sold in 2025 classified as illicit. This makes Malaysia the only market in the region where illegal cigarette sales have overtaken legal sales.
Researchers highlighted a sharp rise in the illicit tobacco market across Southeast Asia, warning that illegal operators continue to profit while governments lose critical tax revenue and legitimate businesses face declining demand.
The report noted that the issue comes at a time when Southeast Asia is already grappling with economic shocks and supply chain disruptions linked to the Middle East crisis, placing added pressure on government budgets and raising concerns over the region’s economic resilience.
In that context, the report described illicit trade as a strategic threat to ASEAN’s long-term growth ambitions.
Among the ASEAN-6 countries, Indonesia recorded the highest estimated government revenue losses at US$5.6 billion, followed by Malaysia and the Philippines at US$2.5 billion each.
Overall, illicit tobacco trade caused an estimated US$13.1 billion in government revenue losses across ASEAN-6 over the past two years.
The illicit tobacco market in ASEAN-6 generated an estimated US$12.6 billion in revenue between 2024 and 2025, with illegal cigarette sales rising 14 per cent and illicit vape sales jumping 24 per cent in just one year.
Malaysia’s illegal vape market alone was estimated to be worth RM1.7 billion (US$365 million) in 2025, the highest among ASEAN-6 countries, with illicit products accounting for 67 per cent of total vape sales nationwide.
The report stated that demand for illicit tobacco products continues to be driven by lower prices and easier accessibility, while supply chains are aided by ASEAN’s vast and interconnected trade routes as well as uneven enforcement across borders.
Illegal cigarettes and vape products are largely produced within the region, particularly in Indonesia and Cambodia, with additional supply originating from China. Malaysia, Singapore and Vietnam were identified as key regional distribution hubs.
The findings represent only part of the broader illicit trade problem in ASEAN. A previous EU-ABC report estimated the total illicit trade market in the region to be worth around US$35 billion.
“The scale of illicit trade across ASEAN is often underestimated — and more alarmingly, it is growing at a deeply concerning rate. Its impact stretches across economic, public health and security challenges,” said Chris Humphrey.
The report also warned that while the growth of illicit cigarette sales may slow over the next three years, the illegal vape market is expected to expand at a faster pace of nearly nine per cent annually.
Investigators found that smuggling syndicates are exploiting Free Trade Zones (FTZs) across the region to evade customs duties and inspections, including the use of small fishing boats to transport goods.
Major ports linked to illicit trade activities include Port Klang, Subic Bay Freeport Zone in the Philippines, Laem Chabang Port in Thailand, as well as Batam and Sabang in Indonesia.
