Consumption of smuggled, fake cigarettes down 52% in ’17

Consumption of smuggled and fake cigarettes in the Philippines was cut by half last year after the government shuttered homegrown Mighty Corp. for not paying the correct excise taxes.

According to the Asia Illicit Tobacco Indicator 2017 released by UK-based Oxford Economics last September, the Philippines posted the biggest drop in volume of illicit cigarettes among the 16 Asia-Pacific markets covered by the report.

“Illicit” cigarettes were defined in the report as those whose applicable taxes were not paid, including counterfeit, contraband and non-domestic with unspecified market variant cigarettes as well domestic illicit cigarettes or loose tobacco.

In the 16 countries—which besides the Philippines also included Australia, Cambodia, Hong Kong, Indonesia, Laos, Macao, Malaysia, Myanmar, New Zealand, Pakistan, Singapore, South Korea, Taiwan, Thailand and Vietnam—illicit consumption accounted for 14.6 percent of the total in 2017, equivalent to 115.9 billion cigarette sticks.

Compared with 2016, the volume of illicit cigarettes declined, thanks to dropping volumes in five markets led by the Philippines, followed by Indonesia, Pakistan, Laos and Australia.

“The Philippines experienced the sharpest decline in illicit consumption (down 51.8 percent) following a fall in domestic illicit after the high-profile indictment of Mighty Corp. for tax fraud,” Oxford Economics said.

Last year, the volume of domestic illicit dropped by almost two-thirds to 3.6 billion cigarettes, it added.

In 2017, the estimated tax losses from illicit cigarettes fell in the Philippines, Laos and Pakistan.

“In the Philippines, the tax loss declined by nearly 50 percent, underpinned by a sharp decline in domestic illicit consumption following a successful crackdown on domestic illicit tobacco manufacturers from authorities. As such, the sharp decline in domestic illicit consumption more than offset an increase in excise tax rates,” according to Oxford Economics.

The Mighty brand is now owned by Japan Tobacco International (JTI) as mandated under the homegrown cigarette manufacturer’s tax settlement with the government.

Mighty had faked cigarette tax stamps to evade payments.

As part of the settlement agreement, JTI paid the government a total of P30 billion, while the tax evasion cases filed against the Bulacan-based company and its top officials were withdrawn.