JTI: Higher tobacco taxes may worsen smuggling

MANILA, Philippines — Cigarette manufacturer Japan Tobacco International (JTI) Philippines Inc. yesterday warned that further increasing the excise taxes on tobacco products could worsen the incidence of cigarette smuggling in the country.

In a statement, JTI president and general manager Manos Koukourakis said higher tobacco sin taxes, as proposed by the Department of Finance (DOF) and Department of Health (DOH), may negatively affect tobacco farmers, cigarette retailers, suppliers and employees, and others who benefit from the tobacco industry.

He said higher taxes would benefit smugglers and encourage more to illicitly trade cigarette products in the country.

“When we talk about the tobacco industry we need to bring in mind the thousands of farmers, the millions of retailers, the thousands of employees, the thousands of those who indirectly work for tobacco, the many suppliers and their employees, all those who benefit from the income generated from tobacco consumption,” Koukorakis said.

“All of them will be negatively affected by a tax hike. The smugglers, though, will benefit because the higher the tax, the higher the benefit due to tax avoidance,” he said.

Koukourakis cited the situation in other countries which raised tobacco taxes steeply, saying these countries are now suffering the effects of cigarette smuggling.

“Everything looks good short-term, but mid- to longer-term, the consequences are rather dire and we’ve seen it in Malaysia, Thailand, Singapore, Indonesia and so many other places,” he said.

According to Koukourakis, further raising taxes in the country would only disrupt the “balance” in the local cigarette industry, which is supported by the current tax framework.

“Currently, in the Philippines, we have a quite balanced situation. The smokers keep ditching the habit, from 26 million in 2013 down to 16 million in 2018. The young people turn their back at smoking at the highest rates as never before, minus 48 percent,” Koukourakis said.

He said tobacco smugglers are currently kept at bay due to the coordinated efforts of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC), as well as the cooperation of the legitimate tobacco industry.

“The government keeps collecting more from tobacco, P130 billion in 2018, more in 2019,” he said.

“When such a unique balance is struck why would anyone like to disrupt it? Not sure there is another country in the entire Asia Pacific to be at this fortunate situation,” Koukourakis said.

Excise taxes on cigarette products were increased to P35 per pack effective last July 2018 under the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

The DOF and the DOH are still pushing for the passage of Senate Bill 1599, which seeks to increase this further to P60 per pack.

Another version on sin tax reforms was passed by the House of Representatives in December last year, but the rates prescribed in the bill were lower than the proposed rates by the DOF.