BIR incurs 20% shortfall in excise tax collection

MANILA, Philippines —  The Bureau of Internal Revenue (BIR) is suffering from as much as a 20 percent shortfall in excise tax collection, majority of which is due to the illicit trade of tobacco in the country.

BIR Commissioner Romeo Lumagui said tobacco revenue losses remains huge and is one of the reasons why the agency is not attaining its collection target for excise products.

Excise tax is a levy on the production, sale or consumption of a commodity. Excisable products include alcohol, tobacco, petroleum and minerals, among others.

Lumagui did not provide the exact figures, but noted that excise taxes, in general, for the four-month period of the year are 20 percent below the target.

“Excise tax is around negative 20 percent, that’s our shortfall for the total,” Lumagui told reporters during the Global Anti-Illicit Trade Summit on Thursday.

“And the majority or a large part of that shortfall is attributed to tobacco,” he said.

Last year, excise collection from tobacco products declined by nine percent to P160.43 billion from P176.49 billion in 2021.

Lumagui noted that the concentration of illicit tobacco remains in Mindanao.

Despite the shortfall, the BIR chief expressed confidence that collections will post a turnaround for the remainder of the year as the agency ramps up its enforcement activities and the filing of cases.

In particular, Lumagui said the BIR is working on an agreement with online sellers amid the proliferation of illicit tobacco products on e-commerce platforms.

“A lot of online platforms allow the sale of these illicit products. So with their cooperation, I am sure that they will be helpful in removing these illicit products because a lot of buyers buy from them,” Lumagui said.

“They should remove the products, they should police their own platform. If not, then we will have a problem and we are already discussing the possible consequences of that,” he said.

It should be noted that the BIR sets a floor price for tobacco and cigarette products, which means that anything sold below that floor price is not levied with excise tax.

“The only way that you’ll be able to sell below that floor price is when you’re not paying the correct taxes,” Lumagui said.

Anti-smuggling group Fight Illicit Trade (Fight IT) earlier estimated that the government is losing some P24.7 billion in revenues per year due to cigarette smuggling.

Roughly 14 percent of cigarettes or about nine billion sticks consumed in the country are illicit. In turn, the country’s legitimate cigarette manufacturers are being challenged by the unabated smuggling.

Smuggled cigarettes are sold at P2 per stick, easily undercutting legitimate cigarettes by not paying excise taxes. It should be noted that the lowest priced tax-paid cigarette is sold at P6 per stick.