• Illicit cigarette trade rise after gov’t raised taxes – study

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    SINGAPORE: Excise tax collection in the Philippines in 2013 rose after the government implemented the reformed Sin Tax Law but so is illegal domestic trade.

    In 2013, government revenues from the expanded Sin Tax Law reached Php51.5 billion, higher than the Php34 billion projected from the reformed measure’s first year of implementation.

    In the first half of 2014, excise tax from sin products reached Php28.18 billion while the full-year projected gains is Php65 billion.

    A study made by Oxford Economics and the International Tax and Investment Center (ITIC) showed that increase in excise tax rates for mid-tier went up by 231 percent in 2013 while the rate for premium-price brands rose 108 percent.

    But while the government enjoys additional revenues from sin products, the study showed that illicit cigarette trade also went up threefold in 2013.

    The report said some P15.6 billion prospective revenues was lost last year as illicit cigarette trade, mainly those of domestically-produced, increased.

    Year-on-year, the jump in tax loss to the government is about 497 percent increase.

    Of the estimated 105.5 billion cigarettes consumed in 2013, the study showed that 16.3 percent or about 17.1 billion are illicit.

    And the jump in illicit trade consumption in 2013 is a far cry from the estimated 6.1 billion in the previous year.

    ITIC President Daniel Witt, in a briefing, said the tax increase implemented last year contributed to about 59 percent rise in the price per pack of most sold brands in both the low price and premium price segments and a 175 percent rise in the price of those in the super low price segment.

    He said this was the main reason why the Philippines posted the highest growth in illicit cigarette trade in 2013 in the ASEAN.

    “This reflects a huge problem of locally manufactured cigarettes being released into the market without the appropriate taxes being paid,” he said.

    Witt said revenues lost in this illegal trade at almost a million dollar a day is a big help to fund social programs.

    He explained that this problem can be easily addressed since bulk of the cigarette are locally-produced and not smuggled into the country.

    He said “the government has the tools and the jurisdiction to fix this problem” but it should also have the political will to implement the measures to collect the right taxes.

    “We would hope that the implementation of the tax stamp system announced by the Commissioner of the Bureau of Internal Revenue earlier this year, if and only if appropriately enforced,will help address this issue,” he said.

    Witt said increasing the taxes will definitely not address the issue but even make it worst, a situation he called tax shock.

    “The government needs money but they should do it in a way that will not encourage black market,” he added.

    Relatively, Oliver Salmon, Oxford Economics senior economist, during the same briefing, said the government can collect the right taxes if new policies will be implemented properly.

    Asked whether he thinks that the increasing domestic illicit cigarette trading is discouraging foreign investors from locating in the Philippines, Salmon said it is only among the factors being considered by investors.

    He said that among the priorities of foreign investors that want to enter a new market include political uncertainty, level playing fields and political stability. PNA

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