The Federation of Philippine Industries (FPI) is appealing to the government to declare smuggling an act of economic sabotage, saying that illicit trade harms the local economy and steals billions of pesos in government revenue.

Jesus Arranza, chairman of the Federation of Philippine Industries

Cigarette smuggling alone has drained the country of billions of pesos in tax revenue, fueled crime, harmed consumers’ health, and reduced funding for government health programs and support for tobacco farmers, the FPI said in its “Fight Illicit Trade” flyer.

“Agricultural smuggling poses a significant threat to the livelihood of our farmers and fishery folk, and major risk for the consumer's health and safety,” Assistant Secretary Carlos C. Carag of the Department of Agriculture Inspectorate and Enforcement Office (DAIE) said during the first National Anti-Illicit Trade Summit held at Manila Hotel on July 25, 2024.

“Smuggled food products bypass quality control and inspection, payment of taxes to BOC, and discouraging local food production. It is an unfair trade practice and should be considered economic sabotage,” Carag said.

Charlito Mendoza, Undersecretary for the Department of Finance’s Revenue Operations Group, said the Bureau of Customs seized 204 shipments worth more than P41.5 billion in the first half of 2024. The haul included P19 billion in counterfeit goods, more than P13 billion in smuggled general merchandise, and more than P5 billion in cigarettes and tobacco products.

Paul Oliver Pacunayen, acting chief of the Bureau of Customs’ Intellectual Property Rights Division, said the agency’s top five seized commodities in the first half of 2024 were cigarettes, illegal drugs, counterfeit goods, agricultural products, and other general merchandise.

The FPI said 20 percent of cigarettes sold in the Philippines are illegal, with tobacco excise tax collections falling by P41 billion in the past two years because of smuggling.

Bienvenido Oplas Jr., president of Bienvenido S. Oplas Jr. Research Consultancy Services and Minimal Government Thinkers, said cigarette smuggling intensified after the tobacco excise tax exceeded P50 per pack.

Citing the Laffer Curve, Oplas said higher tax rates above a certain point can lead to lower tax revenue. Tobacco revenue reached P125.9 billion at a P30 tax rate in 2017 and climbed to P176.5 billion at P50 per pack in 2021.

“Then things literally went south. At a tobacco tax rate of P55 per pack in 2022, tax revenue was P160.3 billion, or a P16.2 billion decline from 2021. At P60 pesos per pack in 2023, it was just P134.9 billion pesos, or a P25.4 billion decline from 2022 and a P41.6 billion decline from 2021,” Oplas said in a newspaper column.

Oplas said the government also fell short of its tobacco tax revenue target by P49.3 billion in 2022 and by P109.2 billion in 2023. He predicted the government would also miss its 2024 target of P152 billion.

The FPI said the Bureau of Customs seized 5,268 cases, or 53 million sticks, of smuggled cigarettes and heat sticks at the Manila International Container Port in May 2024, smuggled from Singapore. The agency also confiscated P4.6 billion worth of “FLAVA” vape products from warehouses in Metro Manila after the Department of Trade and Industry banned the brand in March 2024.

“Smuggling and illicit trade are not just economic crimes. They are social menaces that erode public trust in our institutions and compromise the quality and safety of goods available to consumers and stifle the growth of legitimate business,” FPI president Jesus Montemayor said during the summit.

The FPI also wants smuggling of industrial products to be a nonbailable offense, mirroring a proposal to classify agricultural smuggling as economic sabotage.

“Millions worth of goods have been smuggled into our country, impacting critical industries such as petroleum, steel, resins, wood, agricultural products, and other important industries. When industry and government work together, we can achieve remarkable results. Let us continue to build on this momentum. Let us advocate for stronger policies, support the modernization of our customs systems, and promote transparency and accountability at all levels,” said Montemayor.

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