LAPU-LAPU CITY, Cebu - As the conflict in the Middle East threaten supply chains, Philip Morris International (PMI) has warned that it could trigger a major surge in the illicit trade of cigarettes, which may cost Southeast Asia billions in tax revenue should governments fail to respond

Rodney van Dooren, regional director for illicit trade prevention at PMI, told reporters that illicit traders thrive in “turbulent times,” where procuring key inputs to manufacture products is sometimes nearly impossible due to unforeseen upheavals.

He said ongoing disruptions in the Middle East, especially in the Strait of Hormuz, remind him of what happened during the recent pandemic, when the illegal cigarette trade in the Philippines rose to 17 percent from a previous six percent.

“The minute you start to strangle a supply chain and make it virtually impossible, or at least difficult, to get access to the products you need, these illicit guys jump all over it,” Van Dooren said. “So, it makes me worried when we see what's happening in the Middle East at the moment."

Illicit traders normally sell their bogus products at very low prices to attract consumers, making it difficult for legitimate companies to compete on a level playing field since taxes are included in the prices of their products.

“If we're not sustaining our business, which means legitimate companies are losing volume to the illicit, we're paying a lot less taxes. We're happy to pay a lot more tax, but the only way we can pay a lot more tax is if we can recover volume from the illegal trade,” said Van Dooren.

For excise tax alone, he estimated that governments across the Association of Southeast Asian Nations (ASEAN) are losing around $4 billion each year in potential revenues due to illicit tobacco products.

He added that excise tax losses from illegal e-cigarettes and vaping products are estimated at about $2 billion.

In the Philippines, the government’s revenues from taxes imposed on harmful products such as cigarettes are primarily earmarked for public health programs.

“Not just on excise, but I think there's so many other taxes in the tax value chain which are being missed, which could be used for governments to do good things for society,” said Van Dooren.

Beyond its impact on government revenues, he said the proliferation of illegal cigarettes renders already unsafe products “significantly more harmful.”

At present, Van Dooren said the Philippines is among the best countries in ASEAN when it comes to confronting the spread of illegal cigarettes through robust enforcement measures and monitoring initiatives.

But he said these illegitimate goods continue to spread in the country not through any fault of its own, but because of policy lapses in neighboring countries in the region, such as cases where a company exports products without a corresponding import record in the receiving country.

“This is an ASEAN problem, and it needs an ASEAN solution. And for me, the ASEAN solution is for there to be a unified acknowledgement that the current regulation is wrong,” said Van Dooren.

“Unless you address it at the source and you adopt that regulation or something similar that I was explaining before, this problem's never going to go away,” he said.

With the Philippines serving as chair of ASEAN this year, he urged the country to take advantage of the opportunity to push for a unified response against the illicit trade of tobacco products.

For PMI, the company is recommending the implementation of a real-time sharing platform for customs documents among ASEAN members as a measure to immediately flag the entry of illegal goods.