DOF orders BOC, BIR to keep ‘tight watch’ over increasing illegal cigarette trade

MANILA, Philippines–“Bantayan n’yo ‘yan (Keep a tight watch over that).”

This was Finance Secretary Carlos G. Dominguez III’s order to the country’s two biggest revenue agencies amid expectations of a further increase in illicit cigarette trade once higher excise taxes kick in next year under the new “sin” tax reform measure just awaiting President Duterte’s signature.

In a statement Wednesday, the Department of Finance (DOF) said the Bureau of Internal Revenue (BIR) recently reported to Dominguez that its so-called “Strike Team” against illicit cigarettes had raided factories churning out fake cigarettes and counterfeit internal revenue stamps in Tacloban City, Nueva Ecija, and Tarlac.

“The proliferation [of illicit cigarettes and fake tax stamps], that’s going to bloom some more next year. Bantayan n’yo ‘yan,” Dominguez told BIR and Bureau of Customs (BOC) officials during a recent meeting.

Before the 17th Congress came to its close, legislators in June approved further increases in cigarette excise taxes from P35 a pack at present to P45 per pack effective Jan. 1, 2020; P50 a pack in 2021; P55 per pack in 2022; and P60 a pack in 2023.

The Congress-approved measure will also slap new excise taxes on heated tobacco and vapor products.

The higher excise tax rates to be levied on tobacco products were expected to generate an additional P15 billion in revenues to government coffers and augment financing for the Universal Health Care program.

When cigarette excise taxes increased twice in 2018 under the Tax Reform for Acceleration and Inclusion (TRAIN) Act, Dominguez already admitted that illicit trade would likely flourish as cigarettes become more expensive.

As such, Dominguez also directed Customs Commissioner Rey Leonardo B. Guerrero to “step up the BOC’s drive against cigarette smuggling.”

Just last week, the BIR and the National Bureau of Investigation (NBI) jointly raided a printing facility in Malabon City that had been producing fake cigarette labels and tax stamps.

Based on the DOF’s updated calculations, the factory was estimated to produce 3,500 sheets or 630,000 counterfeit tax stamps per hour.

“At P35 per stamp, estimated revenue loss per hour is P22.05 million. If the machine operates eight hours a day, five days a week, 50 weeks a year, it can produce a total of P44.1-billion worth of fake stamps per year,” the DOF said.

Last month, the BOC led the confiscation of machines that had been used to print fake cigarette labels and packaging in Valenzuela City, while arresting a local and five Chinese who were involved in the illegal production.

Also in June, the BOC seized fake cigarettes and cigarette-making machines, among other smuggled items worth over P160 million in Bulacan.

The BOC also confiscated P25-million worth of smuggled cigarettes at the Port of Zamboanga last month.