Hike in cigarette taxes seen to increase smuggling

Amid the big push by the departments of Health and of Finance (DOF) to further jack up the excise taxes slapped on “sin” products such as cigarettes and alcoholic drinks, global manufacturing giant Japan Tobacco International’s (JTI) Philippine unit on Monday warned that higher levies would only exacerbate already worsening cigarette smuggling.

“When we talk about the tobacco industry we need to bring in mind: the thousands of farmers, millions of retailers, thousands of employees, thousands of those indirectly work for tobacco, many suppliers and their employees, and all those who benefit from the income generated by the tobacco consumption—all of them will be negatively affected by a tax hike,” JTI Philippines general manager Manos Koukourakis said.

On the other hand, Koukourakis said “smugglers will benefit because the higher the tax, the higher the benefit due to tax avoidance.”

The DOF and the Bureau of Internal Revenue (BIR) earlier admitted that alongside increased excise taxes under the Tax Reform for Acceleration and Inclusion (TRAIN) Act came a proliferation of illicit cigarette trade in the country.

Under the TRAIN Law, the unitary cigarette excise tax already rose to P35 a pack since July last year.

But the DOF wanted to further increase cigarette excise taxes to at least P60 a pack starting this year, hence lobbying for the approval of Senate Bill (SB) No. 1599 sponsored by Sen. Manny Pacquiao before the 17th Congress comes to close in three weeks’ time.

However, Koukourakis noted that “countries which raised taxes steeply still suffer the effects of smuggling, government coffers included.”

“Everything looks good in the short term, but mid to longer term the consequences are rather dire and we’ve seen it in Malaysia, Thailand, Singapore, Indonesia and so many other places,” he added.