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Tobacco excise fueling smuggling 

Joshua Lao

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It turns out the most pirated goods Filipinos consumed in 2018 were cigarettes, the lobby group Philippine Tobacco Institute (PTI) said on Tuesday.

Lawyer Carmen Herce, as PTI representative, pointed this out before legislators whom he warned against significant increases in the illicit cigarettes trade should Congress persist on its current tack of imposing higher excise tax on the commodity.

According to Herce, taxing the tobacco sector excessively could back fire at some point forward as consumer demand for the “blue sealed” or smuggled cigarette variety gains more traction than locally manufactured but comparatively expensive brands.

Instead of preventing smuggled cigarettes from reaching the market, the government unwittingly encourages its entry instead, the PTI representative said.

According to Herce, there had been a significant increase in seized counterfeit tobacco in 2018 versus 2017 and cited a recent report from the Intellectual Property Office of the Philippines (IPOPHL) showing that the bulk of seized pirated goods in 2018 were cigarettes equal to 85.81 percent of aggregate confiscations.

IPOPHL said in a statement issued just last week that the interagency National Committee on Intellectual Property Rights (NCIPR) seized a total P23.6 billion worth of fake goods in 2018, massive higher than only P8.2 billion in 2017.

According to the PTI representative, the sharp increases in tobacco excise seem to indicate the failure of the tax mechanism to suppress tobacco demand but has also apparently allowed the illicit trade of tobacco products to flourish.

Government deliberately jacked up the excise tax on cigarettes under the Tax Reform for Acceleration and Inclusion (TRAIN) Law in January last year and followed it up with another hike in July, sharply elevating tobacco prices in the process.

The Department of Finance (DoF) is eager to combat smuggling activities particularly in tobacco-related products as the activity redounds to significant losses in revenue.

Herce said the 43 percent drop in legal cigarette volume from 127 billion in 2012 to 73 billion in 2017 was traced to the 1,187 percent excise tax increase from 2012 to 2017.

She said job losses in the tobacco farming sector stood at some 3,000 equal to a 34 percent reduction over a period spanning from 2012 to 2017 and helped drag production by 22 percent in terms of volume harvest.

Senate Committee on Ways and Means chairman Sonny Angara recognized the concern and asked the committee to do something to help the Department of Finance in the battle against smugglers and counterfeit manufacturers.

“Illicit remains and it is growing. This means that smokers have shifted to cheaper illicit cigarettes during the excise tax-driven price increases,” the PTI said.

The PTI likewise cited a Euromonitor projection of revenue loss reaching P16.8 billion should illicit cigarette sales accelerate.

The institute pointed out these activities could cut revenues as large as 13.3 percent this year to 14.2 percent in 2022.

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