Illegal cigarette trade seen to cost gov’t P8B a year

Next to oil smuggling, the illicit trade of cigarettes has become a key concern of the Philippines, with the government seen to lose a potential revenue of P8 billion this year, LTG Group president Michael Tan said.

Speaking to reporters after the annual stockholders meeting of LTG, Tan said the underground domestic manufacturing of cigarettes and the smuggling of products from abroad have been fueling the illegal trade.

LTG is a key partner in the country’s leading cigarette-maker Philip Morris Fortune Tobacco Corp. Inc.

In other Asian countries, Tan said, the illegal tobacco trade has grown to “astronomical proportions.”

“It is eroding government revenues and also affecting legitimate businesses,” he explained.

He estimated that, since the start of the year, the illegal trade had cost the government P3 billion in foregone duties, excise taxes and value added tax (VAT). For the full year, the amount is expected to reach P8 billion.

The lost revenue is said to be enough to build 35,000 additional classrooms this year.

“I think next to oil, [illegal cigarette trading] will be the rising threat,” Tan said.

Based on estimates of key oil industry players, the government loses P30 to P40 billion from oil smuggling a year.

Local manufacturers who do not pay the proper taxes are said to account for about 90 percent of the illicit tobacco trade. The sale of smuggled products accounted for the rest.

A year ago, illegal tobacco traders comprised 4 percent of the market. Today, they account for almost 10 percent, Tan said.

The data was derived from a Nielsen audit on the volume of cigarettes absorbed by the local market.

Tan presented the results of a Nielsen retail survey where a total of 301 million packs of cigarettes had been absorbed by the local market from January to April this year. But taxes paid to the Bureau of Internal Revenue suggested that only 125 million packs were sold.

Last May, it was also reported that the Bureau of Customs seized shipments of counterfeit Marlboro, Winston and Fortune cigarettes alongside other fake food items from China.

“We have to work hand in hand with the government to curtail and stop this,” Tan said.

In the second half of 2013, LTG expects its tobacco business to fare better.

“It depends on how we control the illicit trade,” he said.