A SOLON from Albay recently lamented the low cigarette excise tax collection in the country, which he said can probably be due to the illegal trading of fake cigarettes done mostly online.
Rep. Joey Sarte Salceda, Albay 2nd District Representative, in a statement, acknowledged that the country has a cigarette excise tax collection problem. He said that from the P173.9-billion collection in 2021, this dropped to P160.4 billion last year, or a drop of P13.5 billion.
Worse, he said the 2022 target was at P191.6 billion, which means the country missed it by a massive P31.2 billion.
“The 2022 decline was the largest ever since the enactment of the 2012 Sin Tax Reform Law. The only other time revenues declined over the same period was in 2016, when revenues went down from P100 billion in 2015 to just P94.5 billion in 2016,” he said.
Salceda noted the decline in revenues in 2016 was a wake-up call for the government, which decided to strike heavily against Mighty Corporation, which eventually settled for a P25-billion tax payment. “That restored the uninterrupted upward trend in revenue collections, so much so that even in 2020, during the height of the pandemic, revenues still grew,” he pointed out.
He averred about some evidence suggesting that higher sin taxes on cigarettes may have led people to reduce cigarette consumption. Removals of cigarettes from factories declined from 4.3 billion sticks in 2019 prior to the implementation of Republic Act (RA) No. 11346 to just 3.3 billion sticks in 2020, perhaps along with economic decline.
However, Salceda pointed out that numbers from the World Bank also suggest that the decline in licit removals shouldn’t have been that high. “Smoking prevalence only declined from 23.4 percent in 2019 to 23.0 percent in 2020. A decline of 1 billion sticks could not have been accounted for by an incidence decline of just 0.4 percentage points alone.”
“Something else happened, and it is more logical to suspect that illicit trade accounted for much of the decline in licit removals. While revenue recovery helped mask the problem in 2021, 2022 figures stare us in the face, with the problem becoming more undeniable,” he added.
In the interest of understanding the problem more, Salceda said his staff tried to access fake cigarettes at various channels. He said they succeeded with unbelievable ease in buying from online shopping websites, where they were able to see unstamped cigarettes sold in the open at prices less than half those of licit counterparts.
The brands, he said, include H&P Gold, which is the cheapest at P380 per ream. President and Two Moon sell for P399, and which are labelled supposedly for the Thai market. “As you will remember, the House Committee on Ways and Means under my chairmanship alerted our authorities in 2021 to the sale of cigarettes meant for export to the domestic market. The sale of these cigarettes apparently persists.”
Online shops, according to the Albay solon, categorize them under everything from “Asian herbs” to “T-shirts.” In the review page, buyers indicated that they bought these cigarettes for their sari-sari stores, indicating that the purchase of these cigarettes online is meant for resale to the retail market.
“We also tried to buy on Facebook marketplace. Again, in the open, illicit cigarettes are sold. San Marino, Casablanca, Cannon, Fort, and Bravo brands sell for P350 per ream. Modern, Hotjoy, and J&J sell for P450 per ream. For comparison, a ream of Marlboro Reds is at around P1,750,” the solon said.
There is also illicit trade at the high-end market, he averred, where premium brands such as Chunghwa cigarettes, the luxury cigarette brand in China, is also available without tax stamps in Binondo for P350 per pack.
In other words, Salceda emphasized that in every segment of the market, and in practically every venue for selling, illicit cigarettes are extremely easy to come by. “There is no challenge to buying these brands. And they sell it as low as 1/5th the price of licit cigarettes. Walang kalaban-laban ang matino.”
Even fakes of premium brands are becoming easier to come by. From the same online shopping sites, fakes that are half the price and, supposedly, of the same flavor, are sold openly.
Smokers are obviously not health-conscious, he said, as these people are unlikely to care about whether a cigarette is taxed or is fake, as long as it delivers the nicotine and flavor desired. And if they can buy illicit cigarettes so easily in the open, they will. He noted that the incentive to smuggle will persist, as indexation continues to widen the gap between licit and illicit cigarette prices.
“We estimate that the revenue losses due to illicit trade in cigarettes this year will at least be P60.6 billion if current illicit trade trends persist. This year, the health costs of smoking-related diseases is P188 billion. Without illicit tobacco trade – assuming those who buy them now have to shift to the regular-priced cigarettes – the cost could decline to as low as P150.9 billion,” he noted.
He said the problem in its complete form, or in every stage of the value chain, must be attacked. This is why he is considering a comprehensive tobacco illicit trade bill that addresses everything from smuggling through the de minimis loophole and through the country’s ecozones, to leakage of tobacco declared for export or transshipment, to the manufacture of fake cigarettes.
“Regardless, until we solve the issue of illicit trade in cigarettes to a significant degree, there will be hesitation among the public to support further tax increases in tobacco. In the meantime, the revenue base will continue to shrink and there is a chance that prevalence might actually increase as a result of cheaper illicit alternatives. This is a serious national crisis. For better or for worse, our advocacy of higher taxes played a role in making the illicit sector more attractive. We have a responsibility to help solve this problem.”