RP loses P13B/year in revenues on smuggling of ‘sin’ products

A recent study reveals that at least P13.2 billion worth of revenues a year is lost to technical smuggling of so-called ‘sin’ products such as cigarettes and alcohol.

Commissioned by the Department of Finance, the study shows that foregone revenues from technical smuggling of sin products reached P52 billion from 2000 to 2005.

According to the study, the revenue losses consisted of about P2.8 billion in tariff losses, P36.9 billion in excise tax losses and P11.1 billion in value-added tax losses.

Top revenue leakages were spirits (P22.3 billion for the period covered in the study), cigar and cigarettes (P20.5 billion) and wines (P6.1 billion).

The study was conducted to determine revenue losses from technical smuggling of goods with a special focus on heavily excisable sin products which showed huge revenue foregone for these products.

According to the study, it undertook the identification of the duty-free shops where imports were sizeable in nominal terms: $27 million for tobacco and $62 million for spirits.

The study explained that to help increase its collection, the Bureau of Customs (BOC) routinely distinguishes the countries whose recorded exports to the Philippines were inconsistent with the accounted imports of the Philippines.

"Discrepancies between the Philippines and her partner country are indicative of unrecorded importation activities or leakages," the study explained.

The study said leakages and corresponding tariffs were detailed by product and country of origin while the excise and VAT were computed on the basis of the total taxable volumes so the country breakdowns were not provided.

Based on the results of the study, Hong Kong and Singapore consistently showed extremely high leakage rates and large absolute amounts in discrepancies of about $400 million per year.

Since these were not tobacco producers, the study said the products were most probably cigarettes.

Malaysia, Australia, China and Macau, on the other hand, show very high leakage rates but the amount was only 10 percent of the losses from Hong Kong and Singapore.

The study said tobacco-exporting countries like Brazil and Malawi also appeared in the list, but the products involved were unmanufactured tobacco and not cigarettes.

On a per product basis, the study said the leakage rates were most troublesome for tobacco and cigarettes 80 percent for Hong Kong and Singapore which together account for 75 percent of total leakages.

The same was true for beer where the leakage rate was close to 100 percent, fermented liquors (80 percent) and other liquor (90 percent).

On the whole it was estimated that the government loses at least P64 billion a year in revenues from the leakages in Customs tax and tariff collections due to technical smuggling from the country’s major trading partners.

A new study shows that from 2000 to 2005, estimated revenue losses were huge: Over P79 billion in tariffs and close to P176 billion in value-added taxes for a grand total of P255 billion or P64 billion a year.