Tobacco exec urges stepped up anti-smuggling drive

The second biggest player in the local tobacco industry on Wednesday asked the government to intensify its anti-smuggling campaign, citing the proliferation of illicit cigarettes even in the President’s hometown.

“There are billions of tax revenue losses because of cigarette smuggling, which is becoming rampant throughout the country. As I write this note to you, I’m walking around the biggest public market in Davao, where smuggled cigarettes’ sellers are ubiquitous and almost normalized among all other legitimate sellers,” Japan Tobacco International Philippines’ general manager Manos Koukourakis said in a message to reporters.

“Instead of raising taxes and going after the very legitimate companies like JTI Philippines, why don’t we better go after the smugglers? It will be good for the government, good for decent employment, far better for those adults who chose to smoke and not against the legitimate industry,” added Koukourakis, referring to the government’s plan to incorporate the bill of Senator Manny Pacquiao aimed at further raising cigarette excise taxes in its proposed tax reform package “two plus.”

Excise tax

Under the first package or the Tax Reform for Acceleration and Inclusion (TRAIN) Act, the unitary excise tax slapped on cigarettes already rose to P32.50 per pack effective January 1 from P30 a pack last year.

The TRAIN mandated a further increase in the cigarette excise tax rates to P35 per pack from July 1, 2018 to Dec. 31, 2019; P37.50 a pack from Jan. 1, 2020 to Dec. 31, 2021; and P40 from Jan. 1, 2022 to Dec. 31, 2023.

From Jan. 1, 2024 onwards, the specific tax rate on tobacco products will be increased by 4 percent yearly, under the TRAIN Law.

Department of Finance data showed that the government targets excise tax collections from cigarettes this year to reach P126.9 billion.

“Let’s not forget that for every P1 billion in gross revenues, the government makes P800 million in taxes—excise tax and value-added tax, excluding corporate income taxes. So in the end, the biggest beneficiary of clamping down on smuggling is the government,” Koukourakis said.

Disaster

According to Koukourakis, further raising cigarette excise taxes “will be disastrous for the legitimate tobacco industry,” which, he said, lost sales equivalent to 40 billion cigarette sticks in the last five years.

“From sales of 110 billion sticks in 2013, it came down to 70 billion in 2017,” Koukourakis said, as the Sin Tax Reform Law passed in 2012 mandated higher excise tax rates not only to discourage smoking but also to shore up government revenues.

“Another tax increase, which inevitably will lead to further consumer price increases, seriously risks to turn our country into a Malaysia, where cigarette smuggling is almost 60 percent of total consumption,” Koukourakis warned.

Tax evaders

In response, Finance Secretary Carlos G. Dominguez III said “we always welcome information on tax evaders.”

“The information provided will be acted upon immediately by the Bureau of Customs and the Bureau of Internal Revenue’s anti-smuggling and anti-tax evader teams. We expect results immediately,” Dominguez said.

Koukourakis welcomed Dominguez’s pronouncement, saying “we will definitely work with the government and support their efforts with good intel.”

“This administration is sworn to go after smuggling and as part of the legitimate tobacco industry, we will contribute to their efforts as much as we can. Either in Davao or wherever, the government will have a strong ally in its efforts against cigarette tobacco smuggling, which is becoming rampant,” according to Koukourakis.