CUSTOMS (DUTIES) (AMENDMENT NO. 2) ORDER, 1958 (Confirmation)

4.57 p.m.

The Financial Secretary (Mr T. M. Hart): Sir, I have His Excellency's authority to move,

That this Assembly, pursuant to subsection (2) of section 11 of the Customs Ordinance (Chapter 160 of the Revised Edition), resolves that the Customs (Duties) (Amendment No. 2) Order, 1958, published as Notification No. S 300 in Gazette Supplement No. 83 of 3rd December, 1958, as contained in Sessional Paper No S.L. 42 of 1958, be confirmed.

Sir, the object of this motion is to seek the approval of the Assembly for the changes in the tobacco tariff which were introduced on the 3rd of December and which are contained in Gazette Notification No. S 300 of 3rd December.

The changes in the tobacco tariff are briefly:

(i) reversion to the original method of calculation of duty by weight;

(ii) the introduction of a "step" in the tariff for imported cigarettes;

(iii) an increase in the duty on imported cigarettes above the "step", and on all brands of imported pipe tobacco, to Federation levels.

The reasons why these changes have been introduced are briefly as follows.

Firstly, the change in the method of calculation of duty on imported cigarettes and pipe tobacco which was introduced in October did not work particularly well in practice. It led to certain anomalies which were undesirable and contrary to the long-term fiscal objectives of Government. For example, it led to certain popular brands of cigarettes in tins costing more than the same cigarettes in packets with a consequential switch in consumer preference and a corresponding effect in yield of duty. Again, it led to certain brands of cigarettes costing more in Singapore than in the Federation, which was contrary to the policy of Government in the matter. Yet again, the yield from the measures introduced in October promised to be disappointingly small. In all the circumstances, after very careful thought, it was decided to abandon the scheme introduced in October and to revert to the method of calculation on weight alone which had been used for very many years both here and in the Federation.

Secondly, the Government has been considering for some time the possibility of differentiating, in terms of duty and consequently of retail price, between the two main groups of imported cigarettes, namely, the popular brands of cigarettes like Capstan, Players, Gold Flake, Churchman, and so on, and the cheaper brands like Rough Rider, Double Ace and Torchlight. The object is to extract the maximum amount of revenue from the tobacco tariff and at the same time to continue to provide a satisfactory type of imported cigarette for those who cannot afford the increased cost of the more popular brands. It has therefore been decided to make a "step" in the tobacco tariff between imported cigarettes weighing less than 2.32 lbs, per mille and cigarettes weighing more than 2.32 lbs, per mille. The former category will consist of the Double Ace, Rough Rider and Torchlight brands and the duty will remain at the existing level of $8.60 a pound full and $8.10 a pound preferential. The latter category will consist of all other imported cigarettes and the rate of duty will be raised to Federation levels, namely $10.50 a pound full and $10 a pound preferential. And since we do not at this juncture intend to increase the duty on cut tobacco imported for the local manufacture of cigarettes by mechanical means, there will also be yet a third category of cigarettes which will retail at prices substantially below the Rough Rider category. In short, by introducing a "step" in the imported cigarette duty tariff, we are providing three broad categories of good quality cigarettes and meeting the needs of all purses of all in-come categories.

The increase in duty has been dictated by an urgent need for revenue. It should not cause hardship. It has been maintained in the Federation for a number of years without causing hardship.

The effect of these changes in tariff will have been seen from the revised price lists published in the Press by the main distributors. The general effect is that, while the prices of locally manufactured cigarettes and imported cigarettes of the Double Ace category remain at pre-budget levels, the prices of cigarettes like Players, Capstan, Gold Flake, etc., which make up a very large proportion of local consumption, go up by 5 cents for 10. At the same time, as a result of the removal of the element of duty calculated on c.i.f. price, the price of some of the more expensive brands of cigarettes which had as a result risen above the price current in the Federation, has now been lowered to the same level.

It is expected that these increases in duty will yield rather more than $5.5 million in a full year.

There are, of course, certain dangers inherent in the creation of a "step". It creates a margin of price advantage of which those concerned with the marketing of the cheaper brands might possibly be tempted to take advantage. It is sincerely hoped that they will not yield to this temptation because the Government would be most unwilling to have its plans for the benefit of the general public frustrated by selfish interests, and I am sure that it would be prepared to take drastic action to ensure that this was not done.

There is also the question of smuggling. Smuggling has always existed and will always exist as long as the Rhio islands are part of the trade area of Singapore; as long as re-exports are allowed freely; and as long as tobacco duty is levied in Singapore. It is only natural that any increase in duty in Singapore should increase the incentive to smuggle and it is only to be expected that the increases now introduced will lead to increased activity on the part of the smugglers. On the other hand, the Preventive Branch of the Customs Department is now better equipped than it has ever been before to deal with this nuisance and I think it safe to say that all those people who see in the increase in tobacco duty an opportunity to line their pockets by smuggling will be in for a very hard time. But there is another aspect of the matter. Before the cigarettes can be smuggled back to Singapore, they have to be despatched to Rhio and we now have a deplorable situation in which certain firms, while gladly accepting all that Singapore has to offer in the way of a secure base for their business activities, seem quite prepared to stab her in the back by exporting cigarettes to Rhio regardless of the possibility that a large percentage of their exports will in due course be smuggled back. I think that the time is rapidly approaching when drastic action must be taken against this short-sighted trading practice.

Sir, I beg to move.

Inche Mohamed Sidik Bin Haji Abdul Hamid: Sir, I second it.

Question put, and agreed to.

Resolved,

That this Assembly, pursuant to subsection (2) of section 11 of the Customs Ordinance (Chapter 160 of the Revised Edition), resolves that the Customs (Duties) (Amendment No. 2) Order. 1958, published as Notification No. S 300 in Gazette Supplement No. 83 of 3rd December, 1958, as contained in Sessional Paper No. S.L. 42 of 1958, be confirmed.