The prevalence of cigarette smuggling in the country has something to do with the imposition of higher taxes on this product, the Federation of Philippine Industries (FPI) said.  

FPI Chairman Jesus Arranza said this is based on a latest study conducted by the University of Asia and the Pacific (UA&P), which he said was estimated to cause P22-billion in foregone government revenues. 

Arranza, who is also chairman of the Fight Illicit Trade initiative, is scheduled to launch the FPI commissioned study on Thursday, Oct. 12. 

He also quoted another study conducted five years ago showing forgone revenues of P200-P250 billion due to smuggling.  

“The study says there is a direct correlation in the imposition of  higher taxes on cigarettes to smuggling,” said Arranza adding that imposing higher taxes on an industry can result in financial constraints.  

The current specific excise tax rate is P60 per pack of 20 cigarettes and is set to increase by four percent annually thereafter. 

Arranza further said that legitimate cigarette companies estimate as much as 70 percent of cigarettes sold in the country are sourced via illicit trades. 

He further noted that foregone revenues are not the only economic loss, but there are other issues like employment as companies downsize because they are also losing markets and tobacco farmers losing income and other adverse effects on consumers. 

Arranza said the high tax rates on cigarettes have made it attractive for smugglers. “A smuggler will not go to a country where the price is so high, the higher it is the better for them. This will eventually lead to displacement of labor and low purchasing power,” he warned.

He said the UA&P commissioned study focuses on eight commodities, with the cigarette portion coming out first since it is the most smuggled item among the products.