Hong Kong: More untaxed cigarettes were smoked in the Philippines last year, subsequently increasing foregone government revenues, a study released here Tuesday said.
Data from a Philippine market report, prepared by the International Tax and Investment Center (ITIC) and Oxford Economics, put the volume of 2014 illicit cigarette consumption at 19.9 billion sticks, up 4.1 percent from the previous year. The report is an extract from the forthcoming Asia-16 Illicit Tobacco Indicator 2014, which is set for release in the fourth quarter of this year.
Illicit consumption refers to the use of non-domestic cigarettes —smuggled goods or counterfeit products from another country —and locally made sticks that are both sold without the payment of required taxes.
Philippine-made cigarettes accounted for almost all of illicit consumption, which at 19 billion sticks was 10.8 percent higher. Illicit non-domestic cigarette use, at 900 million sticks, was down 55.3 percent from 2013.
Illicit consumption cost the government an estimated P22.5 billion in lost excise and value-added tax revenues, the report noted.
Experts, however, are hoping for a marked decline in illicit cigarette consumption this year with the implementation of the Bureau of Internal Revenue’s (BIR) tax stamp program.
“In line with the amendment of the National Internal Revenue Code of 1997, it is anticipated that the affixture of tax stamps introduced on December 1, 2014 will ‘further improve tax administration’ and ‘deter mis-declaration of removals’,” the report said.
In Tuesday’s briefing, Oxford Economics Senior Economist for Asia Oliver Salmon noted that the government’s move should be part of a wider campaign to address the illicit cigarette trade problem.
He pointed out that significant tax-led price increases had left the market exposed to the threat of cheap cigarettes from other countries as well as counterfeits of well-known brands.
“As evidenced by this report, significant price increases over the last few years have led to the erosion of the legal market for cigarettes, with the illicit trade filling the gap” Salmon said.
He noted that legal domestic cigarette sales (or tax paid volumes) fell further last year to 82.3 billion sticks. Overall, following the implementation of the new sin tax law in 2013, legal domestic sales were said to have fallen by nearly 20 billion sticks.
University of the Philippines economist Benjamin Diokno, an adviser to the ITIC who reviewed the report, sa id the rise in domestic illicit cigarette consumption had built a compelling case for the BIR’s new Internal Revenue Stamps Integrated System as a means of protecting government revenues.