Gov’t lost P15.6 B in 2013 due to illicit tobacco trade – study

MANILA, Philippines - The government lost an estimated P15.6 billion in taxes last year due to illicit tobacco trade in the country, according to a report by UK-based Oxford Economics and US-based International Tax and Investment Center.

“Because of illicit tobacco trade, the government is losing over P15 billion it should have been collecting from tobacco excise tax,” Adrian Cooper, chief executive officer at Oxford Economics, said in a briefing yesterday in Makati.

Cooper described the amount as representing a surge of 497 percent or almost sixfold from the P2.6 billion estimated in taxes lost to the illegal trade of tobacco products.

The report, commissioned by Philip Morris International Inc., was designed to measure the consumption of illicit cigarettes – those sold in the domestic market but fail to comply with the right tax dues – in the Philippines and its impact on revenue losses for the government.

 â€œWhile the administration can be pleased they have achieved a 114-percent increase in tobacco excise revenue in 2013 as a result of the new tax regime, one cannot ignore the tax foregone as a result of this very rapid growth in the illicit cigarette trade, with domestic illicit cigarettes making up the lion’s share of this,” Cooper said.

The report found that 19.1 billion illicit cigarettes were consumed in the country last year, almost three times the estimated 6.4 billion illegally traded cigarettes used in 2012.

This means one out of five cigarettes consumed in the country last year were illegally traded, with an estimated 105.5 billion cigarettes used in 2013.

 â€œThe rise in consumption of domestic illicit cigarettes followed the sharp increase in the price of cigarettes, particularly in the ‘super low-price’ segment where widely available and popular brands are observed selling below total tax and cost of production,” Cooper said.

 â€œNot only is this indicative of tax evasion, it also undermines the public health goal of the tax reforms, to make cigarettes less affordable. We understand this practice is currently the subject of a number of investigations, and we encourage vigilance and perseverance in addressing the issue,” he continued

Cooper recounted that a big chunk or 90 percent of the 19.1 billion illicit cigarettes consumed last year were manufactured locally.

 â€œWithout appropriate safeguards put in place… there’s a danger that the scale of tax evasion we’ve seen right now could further escalate,” Cooper said, although he declined to name brands thought to be responsible for the illicit trade of cigarettes.

Cooper said the report will be presented to officials from the Bureau of Customs, the Bureau of Internal Revenue, and the Department of Finance during the day (Thursday).

Republic Act 10351 or the Sin Tax Law, which took effect Jan. 1 last year, raised the prices of alcohol and tobacco products to rake in more revenues for health care programs and efforts supporting tobacco farmers in the country.

Latest data from the BIR showed excise tax collections from tobacco products rose 14.22 percent to P11.34 billion in the four months to April from the same period a year ago. This figure exceeded the P10.85-billion target for the period.

Together with dues collected from alcoholic beverages, excise taxes from all sin products summed up to P23.02 billion as of April, up 11.83 percent from the same period last year.

Last year, the BIR collected P100.9 billion in sin taxes, breaching its P85.86-billion goal for the year.