Illegal tobacco trade flourished during the pandemic period, data showed.
Rep. Jericho Jonas B. Nograles, chairman of the technical working group of the House Ways and Means Committee on the Illicit Tobacco Trade and Agricultural Smuggling, presented data from the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) during a recent webinar organized by the National Tobacco Administration (NTA) showing that revenue loss from illegal tobacco trade went up by 662 percent to P3.1 billion in 2020 from just P406.9 million in 2019.
Nograles showed a combined tax loss of P4.73 billion from 2019 to 2021, comprising of P3.1 billion in 2020 and P1.21 billion in 2021. In the first quarter of 2022, Nograles said that BOC also reported they have seized P132.56 million worth of fake cigarettes.
The lawmaker also cited a Euromonitor International report showing that about 13 percent of the total cigarettes sold in the country are illegal.
“What happened in the last few years? Number one: unemployment and a decrease in income have put pressure on the household budget. It’s difficult to stop smoking, but it’s easy to spend money. People want to save money amidst rising prices of commodities and decreasing household income,” Nograles explained at the NTA webinar.
The increase in illegal cigar trade to lack of personnel because of the lockdowns due to the pandemic. “We were not able to operate on a massive implementation because we cannot go into some areas that are under lockdpown,” said Atty. Beverly Milo, head, Revenue Executive Assistant for the BIR’s Large Taxpayers Service Excise, said at the same NTA webinar.
In addition, amid the global health crisis.cigarette prices also went up starting January, 2022 due to the P55 increase on excise tax. A study by management consulting firm Alvarez and Marsal cited a 97 percent correlation between taxes and tobacco prices, in which the illegal tobacco trade grows as the legal options become more unaffordable.
Another report by the EU-ASEAN Business Council confirmed that Illicit tobacco traders discovered new profiteering strategies during the COVID-19 pandemic. Organized criminals in the illegal cigarette trade exploit decreasing buying power and increasing demand for cheaper goods that are rampant during the ongoing global health crisis.The EU-ASEAN Business Council also noted that ASEAN countries lose about $3.3 billion in tax revenues each year due to smuggled cigarettes.
“As cash-crunched consumers search for cheaper deals, they may inadvertently choose and purchase counterfeit alternatives. Similarly, small businesses looking to shave margins might be defrauded—or willing—to purchase components or ingredients in bulk even though they are fake or from illegitimate sources,” another study by the EU-ASEAN Business Council revealed.
Tobacco products like cigarettes are one of the most smuggled goods in the ASEAN region. According to the World Bank, the global trade of illicit tobacco is worth an estimated $40-50 billion.
Other countries in the ASEAN region fare no better. Just this 2020, Malaysia lost a staggering RM 1 billion in unpaid tax revenues, which is roughly equivalent to P11 billion.
All ASEAN member states save for Indonesia are signatories of the WHO Convention on Tobacco Control. This requires countries to suppress the illegal tobacco trade. However, no ASEAN states are part of the Protocol to Eliminate Illicit Trade in Tobacco Products, which requires cooperation and information sharing between countries, including international organizations and customs offices.
Nograles advised that strengthening enforcement efforts and ramping up cooperation are key tasks in eradicating the illegal tobacco trade. This includes improving intelligence sharing between agencies and implementing stringent frameworks for the prosecution and conviction of illegal traders.