Policymakers are urged to consider the risks of encouraging the illicit trade of tobacco products by raising the prices through higher taxes, according to a United States-based consultancy.
Alvarez & Marshall said in their 2021 report titled “Causes and Control of Illegal Tobacco” that taxation policy and its effect on the affordability of tobacco products is an important factor in the global illegal tobacco trade.
The Philippines was included in the 15-year study of 71 markets.
“There is a 97-percent correlation between taxes and tobacco consumption,’’ the A&M Report said.
“Illegal trade grows when legal tobacco products become less affordable,” it added. “When cigarette prices rise more quickly than consumer incomes, consumers begin to seek cheaper options and switch to illegal products.”
This suggests that increasing the price of tobacco and reducing affordability encourages smokers to seek cheaper products and creates opportunities for criminals. In other words, less affordable tobacco products result in more illegal trade.
“We find that … if cigarettes become 10 percent more expensive for consumers relative to their income, the share of illegal tobacco will rise by an average of almost 7 percent,” A&M added.
In a separate study, the EU-Asean (Association of Southeast Asian Nations) Business Council and Transnational Alliance to Combat Illicit Trade (Tracit.Org) estimated that the Philippine government loses about P10.7 billion in tax revenues yearly due to smuggling.
Globally, Tracit.Org estimates that governments in Southeast Asia lose tax revenues of about $3.32 billion yearly.
The EU-Asean study further cited that aside from causing monetary losses to governments and legitimate businesses, the illegal tobacco trade undermines public health initiatives, contributes to underage smoking, and funds organized crime and terrorist activities.
The Philippines adopted a unitary tax structure for tobacco products in 2017. Another tobacco tax increase was passed under Tax Reform for Acceleration and Inclusion (Train) Law, which imposed a 17-percent cigarette tax increase in 2018.
The Train law was superseded by Republic Act No. 11346 of 2019, which increased the tax on cigarettes by 29 percent in 2020. This will be followed by 11, 10, and 9 percent increases, consecutively, from 2021 to 2023; after which, a 5-percent annual increase will take effect.