BIR hits firms’ opposition to ‘sin’ tax bill

The Bureau of Internal Revenue on Tuesday slammed “big tobacco” firms for using scare tactics about smuggling in opposing a bill on excise tax reforms that the House committee on ways and means has approved.

In separate statements and on different occasions, Philip Morris-led PMFTC and Japan Tobacco International (Philippines) lamented the “excessive” tax increases that House Bill No. 5727 provides, aside from warning against heightened smuggling that this would engender if enacted.

PMFTC and JTIP have also objected to an imminent increase in the prices of their products resulting from the proposed adjustment in taxes, saying this would dampen demand and push down sales.

They said that with prices of their brands shooting up, smokers would prefer cheaper—and illegal—cigarettes.

But “cigarette prices are not the main determinant of how much smuggling takes place, it is the quality of governance that really matters,” Internal Revenue Commissioner Kim S. Henares said in a statement.

“The smuggling concerns often voiced by tobacco industry supporters are a clear case of red herring fallacies,” Henares said.

She added that except on few occasions, nations that have jacked up tobacco taxes have undergone little or no perceived changes in smuggling activity.

Henares cited data from the World Bank, which showed that the governments of Sweden, the United Kingdom and Singapore managed to contain illicit cigarette trading to only 2 percent of total domestic sales in 1995 due to honest, effective, well-designed public interventions.

In those countries, a pack of cigarette costs $4.58, $4.16 and 2.24 Singapore dollars, respectively.

Henares added that, on the other hand, the WB also found that some countries have suffered exorbitant levels of illegal tobacco trafficking due to “slapdash state action.”

She said that in 1995, smuggled merchandise represented as much as 28 percent of domestic sales in Vietnam although the cost of a pack of cigarettes there at $0.10 was less than half compared to $0.22 in the Philippines.

“These numbers confirm that we can pass (HB 5727) without needing to fear smuggling, so long as we redouble efforts on governance reforms,” Henares said.

The BIR and the Bureau of Customs are now enacting what may be the most successful administrative reforms in more than 20 years, and “we’ll soon be implementing a new tax stamp system on cigarettes,” she said. “This will help curb whatever smuggling and tax leakages we currently experience.”