Innovative moves needed to fight illicit cigarette trade — Salceda
A ranking lawmaker called for new approaches to fight illicit cigarette trade, which he considers as a pervasive “serious national crisis.”
“We have to come up with more innovative and dynamic countermoves against illicit trade because illicit trade is the bigger evil right now. For better or for worse, our advocacy of higher taxes played a key role in making the illicit sector more attractive,” Albay 1st district Representative Joey Salceda said.
“When revenue recovery helps mask the problem in 2021, 2022 figures stare us in the face with the problem becoming more undeniable — in your face,” said Salceda, who is also House Committee on Ways and Means chairman, noting that from 2021 cigarette excise tax collection of P173.9 billion, it declined to P160 billion in 2022.
Citing World Bank data, he said, “Removals of cigarettes from factories declined from 4.3 billion sticks in 2019 before the implementation of Republic Act 11346 to 3.2 billion in 2020. Numbers from the World Bank also suggest that the decline in legal removals shouldn’t have been that high. Smoking prevalence only declined from 23.4% in 2019 to 23% in 2020.”
Salceda then noted, “A decline of 1 billion sticks could not have been accounted for by a [smoking] incidence decline of just 0.4 percent alone. Something else happened. It is more logical to suspect that illicit trade accounted for much of the decline in licit removals.”
The government stands to lose at least P60 billion in revenues. At the same time, the health cost due to smoking-related disease will go as high as P188 billion if the current trend of rampant illicit trade continues to persist in the country, Salceda said on Tuesday at the “Defend Sin Tax, Fight Illicit Trade” media forum organized by the Sin Tax Coalition to address the issue of illicit trade in the Philippines.
To understand the problem more, Salceda said his staff attempted to access fake cigarettes from online channels, such as Lazada, Shopee, and Facebook Marketplace and were able to “succeed with unbelievable ease” at viewing and purchasing these illicit products. He said platforms categorized them under misleading categories like “Asian Herbs” and “T-Shirts” which allowed them to see illicit cigarettes sold out in the open at prices less than half of their licit counterparts.
According to Salceda, brands like San Marino, Casablanca, Fort, and Bravo are sold on e-retailer platforms for as low as P350 per rim against what should be P800 per rim.
Salceda said, “In every market segment and in practically every venue for selling, illicit cigarettes are extremely easy to come by. There is no challenge to buying these brands and they sell for as low as 1/5 the price of licit cigarettes. Walang kalaban-laban ang matino. The incentive to smuggle will persist as indexation continues to widen the gap between illicit and licit cigarette prices.”
Pia Rodrigo, Strategic Communications Officer of the Action for Economic Reforms (AER), said, “We cannot dismiss the fact that higher taxes may at times encourage an increase in illicit trade.”
She said that “illicit trade can be neutralized by good governance and good institutions,” while putting the onus of illicit trade on the government’s “poor tax administration.”
Salceda also noted, “Regardless until we solve the issue of illicit trading of cigarettes to a significant degree, the hesitation among the public to support further tax increases. ‘Yun lang ang isyu.”
He further lamented that Filipinos are behind the illicit cigarette factories. “Foreigners have nothing to do with it. Karamihan niyan are factories inside Subic, the bulk of it,” he said, referring to fake stamps, rolling machines, and other paraphernalia used for contraband operations housed in local warehouses.
Mentioning that illicit cigarette sticks have risen to around 2 billion in 2023 alone, Salceda then emphasized that enforcement and implementation against illicit traders must be seriously considered before discussing tax increases. Should higher excise taxes be imposed, Salceda said, “’Di lalo na tayo nagka-illicit.”
Salceda said, “Doing nothing against illicit trade is no longer an option. We need a marketing strategy. We need a price point where the key curve happens, and consumption collapses. We just have to make a certain consumer behavior study, basically at which point na differential becomes small, and therefore, enforcement becomes less important. So there will be science-based approaches,” he said.
He recommended to “give it a time for enforcement para makita natin. Enforcement ba talaga ang isyu or structural ang isyu in terms of the price structure. Right now I’m on the enforcement side,” stressing that, “dapat mapa-surface na 60 billion ang mawawala sa gobyerno this year, actual losses, they are not losses against invented target.”