Cigarette smuggling incurs P26-B revenue losses in 2022—Group

The continuous illegal trade of cigarettes incurred P26 billion in losses for the government in 2022, the Federation of Philippine Industries said on Thursday.

Aside from this, PFI chairperson Dr. Jesus Arranza said they sounded the alarm on the damaging effects of the illicit cigarette trade on the country's economy, including the drop in the Gross Domestic Product and loss of employment opportunities and livelihood for Filipinos.

Arranza said the P26 billion revenue loss last year was a 0.39 percent reduction in the GDP during a four-year span from 2018 to 2022, enough to build some 57,000 socialized housing units, 8,642 classrooms, and 75 public hospitals.

Furthermore, Arranza said it also led to a 0.63-percent decrease in household income and a 4.9 percent drop in employment from 2018 to 2022, based on findings by a University of Asia and the Pacific study "Illicit Cigarette Trade in the Philippines: Economic and Social Impacts of Weak Regulatory Enforcement" that it supported together with various sectoral representatives.

The FPI chief warned that the illegal cigarette trade could lead to even more losses to the government and the industries that have served as the backbone of the economy, if not immediately addressed.

"The issue of smuggling in the country is very rampant. Industry is the backbone of our economy. What will happen to our country? Loss of employment, loss of economy. I am happy to find the outcome [of the study], and people are realizing the effects," Arranza said.

The comprehensive study, conducted under the leadership of economist Alyssamae Nuñez, thoroughly discussed cigarette taxation and its pivotal role in discouraging smoking. However, despite the significant progress achieved through tax reforms, the illicit cigarette trade remains a persistent challenge, as she noticed a rise in illicit trade and a decline in retail trade.

"There is a direct correlation between the imposition of new taxes and the rise of illicit trade," Nuñez said, adding that the government must leave no stone unturned "to provide legitimate industry players with a level playing field and to preserve consumer rights."

Instead of imposing new taxes on an industry experiencing illicit trade, Nuñez said the government can complement its efforts by collaborating with other governments and institutions, engaging with international bodies and conventions, and promoting awareness of the adverse impact of illicit trade on nations and their economies.

Aside from their negative impact on the economy, she said illicit cigarettes can also lead to unforeseen health risks due to substandard production and distribution. Moreover, high cigarette taxes have heightened price sensitivity among consumers, intensifying the demand for cheaper alternatives and exacerbating illicit trade.

To combat illicit cigarette trade, the group proposed a whole-of-society approach, including allocation of funds for the conduct of strict patrol of the country's maritime boundaries, end-to-end collaboration between governments of other countries, rationalization of the punishment system, and vigilance among consumers, among others.