Cheaper brands keep smokers puffing, data show

A pack of cheap Mighty cigarettes PHOTO FROM MIGHTYCORP.COM.PH

MANILA, Philippines—Cigarette consumption in the country fell—but only marginally—in the second quarter from a year ago, with an increase in the production of cheap P1 per stick brands helping demand stay afloat despite a hike in sin taxes.

Industry data showed average cigarette consumption at 14.13 sticks a day in the second quarter compared to 14.84 sticks in the same period last year.

Daily consumption was an average 13.53 sticks in the first quarter of the year, but rose back to over 14 percent between April and June as some cigarette firms increased production of the cheaper brands.

Data showed the market share of brands costing P1 per stick rising from 5 percent last year to 30 percent in June this year.

Industry players said the market share of the cheap brands could rise further as the tax on cigarettes increases annually.

Brands selling for P1 a stick include those produced by Mighty Corp. and Philip Morris Fortune Tobacco Corp.

The sin tax reform law, which took effect in January, mandates an annual increase in the excise taxes on cigarette and alcohol products. The rates of increase are specified for this year up to 2017. Afterwards, cigarette tax rates shall rise 4 percent annually to cover inflation.

The new cigarette tax rates effective this year are: P12 per pack for brands with a net retail price of P11.50 and below, and P25 per pack for brands with a net retail price of more than P11.50 per pack.

The objectives of the law are to boost government revenues and to discourage smoking.

Some cigarette firms, however, are trying to prevent a substantial drop in demand by producing cheaper brands.

For 2013, the government projects a collection of P51.6 billion in excise taxes on cigarettes. This is on top of the P6.2 billion in value-added taxes and P6.7 billion in corporate income taxes that it aims to collect from cigarette firms this year.

The excise tax collection target for this year includes P33.9 billion in incremental revenues estimated to come from the tax rate hike.

The incremental revenues targeted for the succeeding years are P42.86 billion for next year, P50.63 billion in 2015, P56.86 billion in 2016, and P64.18 billion in 2017.

Some industry players have expressed concern the higher tax rates could result in a rise in smuggling of cheap foreign-made cigarettes into the country. They said the government would not achieve its revenue goals if smuggling became a problem.