Cigarette smuggling up despite lockdown

Not even the COVID-19 pandemic can stop unscrupulous traders from smuggling illicit cigarettes into the Philippines, mostly through Mindanao.

Finance Secretary Carlos G. Dominguez III disclosed this on Monday, noting that restrictions on the movement of cigarettes under the enhanced community quarantine (ECQ) might be lifted.

“That’s under consideration because the absence of cigarettes encourages illicit trade,” Dominguez said.

However, Dominguez said he was “not in favor” to lift local government units’ (LGU) ban on alcohol products even after the industry had claimed it could raise more tax revenues.

Cigarette industry sources explained to the Inquirer that while there was no outright ban on sales, manufacturing of these “sin” products had to stop during the lockdown imposed in Luzon and other parts of the country.

Both PMFTC Inc. and JTI Philippines halted domestic production, although they both retained a “very small” skeleton workforce to churn out goods for the export market.

Transport and delivery of cigarettes were also not allowed across checkpoints as these were not considered as essential items.

Scrambled to buy inventory

“By this time, retailers’ stocks are depleted,” a source said, and smugglers were taking advantage of the looming shortage in the supply of tax-paid cigarettes.

In a report, cigarette manufacturers said that “as a result of the enhanced community quarantine, it is likely the supply chain of illicit traders had also been disrupted.”

“Intelligence reports indicate that foreign workers in illicit factories returned home in late January. Because of the coronavirus outbreak, these foreigners stayed in their own country and local illicit factories remained nonoperational. Moreover, the same intelligence reports also note that the acquisition cost abroad of illicit whites rose from $80 to $150 per master case in February, as illicit traders scrambled to buy inventory in anticipation of supply-shortages due to the outbreak of COVID-19,” the tobacco firms said.

“Shortly before the March 16 lockdown, intelligence reports showed that illicit traders were ramping orders from foreign sources of illicit cigarettes, which cause prices of imported cheap contraband (illicit whites such as Fort, Two Moon, Union and DnB) to surge to $150 per master case,” they added.

But another industry source said that even as acquisition cost of imported illicit cigarettes was on the rise, they still remained cheaper than those in the formal market.

“Post-enhanced community quarantine, the tobacco industry projects that there will be a resurgence of illicit trade. The enhanced community quarantine resulted in job losses and a decline in incomes, which favor the consumption of low-priced and tax-unpaid illicit products,” industry players warned.

Specifically, they warned that “because of its long coastline and proximity to illicit tobacco products from neighboring countries, Mindanao will be a hotbed for the resurgence of illicit trade.”

“From April 1 to 15 alone in the midst of widespread lockdowns throughout the country, there were three seaborne enforcement operations in different parts of Mindanao. These illicit operations were jointly thwarted by the Armed Forces of the Philippines and the Bureau of Customs (BOC),” they noted.

Last week, the BOC said it intercepted P8.3 million worth of smuggled cigarettes in Zamboanga City.

Cigarette manufacturers noted that “in 2019, the legitimate tobacco industry counted that there were 1.8 enforcements per week” but “from March to mid-April 2020 (with the enhanced community quarantine), there were 10 enforcement actions or 1.6 raids per week.” INQ