‘Smuggling underworld’

If there is a contest on resiliency of people against the impact of the coronavirus disease 2019 (COVID-19) pandemic, smugglers are the hands down winners. In fact, the smugglers in the Philippines are not merely thriving in their illicit activities but have even become more lucrative and not just seemingly impervious to COVID-19 pandemic. Gauging it from reports that come in our news desks everyday, the most smuggled are cigarette products, agricultural goods, and luxury cars in that order of volume and peso value.

By international standards, the Philippines has been rated and ranked the lowest in terms of “resiliency” among countries impacted by COVID-19 pandemic. Since it struck the world in March last year, the pandemic has been hurting many economies also. Nearing the two-year mark that we have been under the COVID-19 pandemic mode, the closure of businesses from the smallest enterprises to the biggest companies have caused more joblessness all around the country. Sadly, however, the twin evils of smuggling and the corruption that allows such illegal activities have added burden to the Philippine economy as it struggles to overcome the pandemic.

A number of top corporate executives, however, have lately shared with us about bits of good news during the past few weeks of our Tuesday Club virtual gathering via zoom webinar. Last week, we had John Freda, the general manager of Japan Tobacco International Philippines (JTIP) whose company is among these businesses still enjoying modest growth in the middle of the COVID-19 pandemic.

A British national with Italian parents, Freda started working for a 33% Japanese government-owned company that now has expanded with 39 branches all over the Philippines. Since acquiring the local cigarette-making company Mighty Corp. in 2017, Freda takes pride that JTIP is now employing more than 43,500 people across the Philippines. That same year 2017, JTIP opened its largest manufacturing facilities in the Asia-Pacific in Malvar, Batangas inside the Lima Ecozone of PEZA. The JTIP Asia Manufacturing Corp. (JTI-AMC) factory exports cigarette products to 15 market countries in the Asia-Pacific and American regions.

When he first joined JTIP last year, Freda recalled, they set up in Taguig City – where the company now holds its head office – a recruitment center to hire 800 people for their Malvar facility. “It made a big impact on our business here in the Philippines and our growth in market share is proof of this,” Freda proudly noted. “To date, we employ 300 people and are still hiring to help soften the impact on unemployment brought about by the pandemic,” he added.

When he first arrived to work here in our country, Freda remembered that the Tagaytay volcanic eruption in January last year was the first challenge he encountered upon assuming office to run the company. The public calamity crisis around the entire province of Batangas became the first test of his management skills in setting up their newest plant facility in Malvar. Then the COVID-19 pandemic reached the shores of the Philippines two months later. Freda found himself facing more challenges due to the ensuing lockdowns that included Batangas.

“There is no shortcut to recovery from this pandemic – in any industry. I believe everybody will continue to make sacrifices. At JTI, we are prepared to face these challenges,” Freda vows. Although JTIP has 37% share of the tobacco market here, Freda conceded, the Philip Morris-Fortune Tobacco Corp. remains as the industry leader.

Aside from lockdowns that restricts in getting their products to consumers, the government’s “no smoking” campaign in public places and excise taxes on so-called “sin” products remain among the biggest challenges to JTIP.

From the current P50 per cigarette pack this year, the excise tax rate goes up to P55 per pack starting next year. Nonetheless, the tobacco industry sector generated roughly P150 billion in revenues for the government. This year, the government hopes to collect P177 billion of excise taxes under the Congress-approved schedule of increasing the tax rates on “sin” products.

Ironically, the tobacco industry is a major revenue source of government. At least 28.3% of the adult population in the country is smokers while data shows smoking incidence continues to decline. By raising taxes to supposedly discourage consumption of cigarette and other tobacco/nicotine products, the government is hoping to reduce smoking-related diseases and deaths. Thus, as much as 80% of excise taxes collected under this “sin” tax law were earmarked to fund the Universal Health Care that has been bankrolling the government’s free vaccination program and other anti-COVID measures.

As the government ramps up its anti-COVID vaccination deployment around the country, the economic outlook notably perks up with it.

While the government seeks to achieve these health and medical goals, it also wants us to raise and collect more taxes from cigarettes and tobacco products, former Bureau of Internal Revenue (BIR) commissioner Jose Buñag, one of our Tuesday Club members, quipped and chuckled.

Freda could not agree more as he turned seriously concerned on the cigarette smuggling incidents that are on the rise again here. “The illegal tobacco trade is a feast for criminals who make huge profits often with very low risk of being caught and insignificant penalties.” Industry information reveals there are more smuggled cigarettes being sold in Mindanao than legitimate ones – 2 out of 10 packs are smuggled. Based from recent Kantar survey, incidence of cigarette smuggling in Mindanao is at 19%.

Thus, the tobacco industry asks the 18th Congress to pass a law for stiffer penalties against illegal underground cigarette trade. Recently, Albay Congressman Joey Salceda, chairman of the House ways and means committee, estimated an annual aggregate of P30 billion to P60 billion of industry losses due to cigarette smuggling alone.

This is a smoking gun evidence to put an end to these criminal activities of the “smuggling underworld” in the Philippines.