Tobacco companies in Philippines are drawing attention to the growing smuggling and counterfeit problems there exacerbated by Covid and lax enforcement of existing laws.
Recent reports in several Philippines media outlets report that the Covid situation and high taxes created a massive smuggling and counterfeit problem in the country.
According to BusinessMirror JTI’s subsidiary in the Philippines reports that the number of illicit cigarettes entering the country rose to 6.8% in the first quarter from the same period last year, and that most of this is two brands Astra and Two Moons manufactured elsewhere and smuggled in with the balance being counterfeited cigarettes.
The media outlet reports that counterfeit are being sold at an average of PP3 ($0.059) per stick, which is about three-times cheaper than the prevailing price of PP8-10 per stick.
According to PhilStar Global, the Philippines ranks in the lower tiers in terms of “resiliency” among countries impacted by Covid-19 pandemic. And that means the “twin evils” of smuggling and corruption allows illegal activities added burden to the Philippine economy as it struggles to overcome the pandemic.
PhilStar says that 28.3% of the adult population smokes in the Philippines generating PP150 billion (SU$2.95 billion) revenues for the government in taxes. he excise tax rate goes up to P55 per pack starting next year from P50.
The media outlet reported that the tobacco industry asked Philippines’ 18th Congress to pass a law for stiffer penalties against illegal underground cigarette trade and that one congressman estimated an annual aggregate of PP30-60 billion of industry losses due to cigarette smuggling alone.
The head of JTI Philippines said in an online conference that PP50-million minimum cash fine and possible jail time of 8-12 years as provided in Republic Acts 11346 and 11467 of the National Internal Revenue Code have not deterred illicit traders from plying their trade. According to JTI, the counterfeit goods market in ASEAN, or Association of Southeast Asian Nations, is worth over $35.9 billion, with $3.3 billion in tax revenue lost annually from smuggled cigarettes.
Globally JTI has made is a mission to draw attention to the global smuggling and counterfeit problem.
“As Covid restrictions gradually come to an end, we need to keep up the pressure against illegal trade,” said Ian Monteith, JTI’s global anti-illicit trade director. “This means continuing aggressive law enforcement action and ensuring governments do not unreasonably increase tobacco taxes to recoup financial losses during Covid. If large tax hikes were to occur and enforcement put on the back burner as borders reopen, all progress against the illegal trade could be easily lost.”
JTI cites a thorough study on the problem: “Causes and Control of Illegal Tobacco - Third Edition: 2021”, globally US$40-50 billion is lost in global tax revenue every year due to the illegal tobacco trade, which undermines the illegal tobacco trade undermines public health objectives, contributes to underage smoking, and funds organized crime and terrorist activities.
In 71 countries analyzed over 15 years, the reports shows that if cigarettes become 10% more expensive relative to incomes, on average illegal trade grows by 7%.