Fake cigarettes and fake tax stamps

Reading between the lines – or in this case, reading stories published as they unfolded – and hearing from the public relations companies or persons representing the various stakeholders, this scandal involving the recent confiscation of Mighty cigarettes bearing fake stamps in a Cebu mall deserves a closer look.

This story deserves some backgrounder. Mighty Corp., a local cigarette manufacturer with over seven decades of local operations, catapulted to second place in domestic cigarette retailing shortly after the toughened sin tax law of 2012 was signed.

It managed to eat up a chunk of the old Fortune Tobacco Corp. market under the newly formed Philip Morris Fortune Tobacco Corp. (PMFTC) alliance, and was reported to be making inroads into the market of the more expensive cigarette brands under the Philip Morris branding.

PMFTC was quick to accuse Mighty of technical smuggling so that it could sell its cigarettes at a much lower price even if it were paying the higher taxes that the new sin tax law had dictated.

Then Bureau of Internal Revenue (BIR) chief Kim Henares agreed to go tough on Mighty by installing closed circuit cameras in its operating premises, hoping to solve the riddle where Mighty was selling its cigarettes at a significant price difference to those of the PMFTC partnership.

With the new administration taking office, Henares was replaced in the BIR without really being able to offer a credible hypothesis to the puzzling problem. And Mighty Corp. continued to eat up the PMFTC market share in the local tobacco industry.

Fake cigarettes on the rise

Last month, the Department of Finance declared it would investigate cases of fake stamps on cigarettes, particularly that involving Mighty Corp. And a few days later, the agents of the Bureau of Internal Revenue swooped down on a Cebu mall reportedly selling Mighty cigarettes bearing fake stamps.

Finger-pointed as an irresponsible company involved in criminal acts, Mighty fought back by saying that it had nothing to do with the fake stamps – and fake cigarettes. Apparently, there were also individuals in various parts of the country apprehended by the BIR agents peddling fake Mighty cigarettes.

With the unitary tax system in place where both imported and local cigarettes are now taxed a single rate of P30 per pack, cigarette has become more expensive to those who continue to smoke. Low-priced brands became vulnerable to faking.

Apparently, this has opened the doors for a surge in criminal activities, including the manufacture of fake Mighty cigarettes (which are more popular for lower-income groups because of its cheaper price) complete with fake tax stamps.

And this could be the reason why Mighty had proposed for the reinstatement of a two-tiered tax system late last year where local and imported brands would have two different rates, albeit higher than the current P30 uniform tax rate for both local and imported brands.

Still, these are all conjectures that need to be given more thought – and investigation.

Fiscal and health impact of counterfeits

One thing for sure, the BIR – including the Bureau of Customs and the local and national police network – need to sharpen their capabilities to fight against counterfeit cigarettes and tax stamps, especially now that taxes on cigarette products are higher than the actual production cost of a pack of cigarettes.

The BIR is now talking about instituting more secure features on its cigarette tax stamps, which should have been done before the unitary taxation scheme kicked in at the start of the year. The problem is serious because it does not just involve lost tax collections for the government, but also the proliferation of cheap cigarettes that could become more accessible to our youngsters.

At the end of the day, if this problem is not properly addressed, we could witness diminishing tax collections from tobacco products and higher health risks for our countrymen who can ill-afford to pay for the treatment of smoking-related diseases.

Vaping debates

Meanwhile, the debate about the merits of substituting cigarette smoking with e-cigarettes (e for electronic) continues. The World Health Organization had issued in August last year that “there is not enough research to quantify the relative risk of ENDS/ENNDS over combustible products. Therefore, no specific figure about how much ‘safer’ the use of these products is compared to smoking can be given any scientific credibility at this time.”

ENDS and ENNDS stand for electronic nicotine delivery systems and electronic non-nicotine delivery systems, respectively. Also known as vaping, these commonly cigarette-smoking substitutes involve using devices that give users a feel that they are smoking real cigarettes.

A popular costly and unproven remedy

E-cigarettes have become the more popular remedies of traditional cigarette smokers to quit their nicotine fixation. However, many organizations are saying that e-smoking does not always guarantee the cessation of nicotine-laced cigarette smoking, and there are other treatments today that give better guarantees.

Nonetheless, there has been limited empirical data that point to its success in weaning traditional cigarette smokers from the habit. And because there continues to be no conclusive finding of harm on e-cigarette users, its use continues.

Perhaps, my biggest beef with e-cigarettes is its cost – where low-income smokers of traditional cigarettes who want to quit the dirty habit will definitely not be able to afford and sustain this lifestyle of spewing vapor that has a mixture of propylene glycol, glycerine, flavorings, and optionally, nicotine.

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