Use of billions in tobacco excise tax unchecked

Four municipalities in the Ilocos region that received the biggest shares from tobacco excise taxes in the past two years have failed to publicly disclose how the funds are being spent, in violation of budget rules, but the national government looks helpless in making them comply.

Candon City, the municipalities of Cabugao and Santa Cruz in Ilocos Sur, and Balaoan in La Union each received more than a billion pesos in shares from tobacco excise taxes since 2016, but failed to comply with Department of Budget and Management (DBM) memoranda reporting requirements. 

LGUs that benefit from excise taxes are required to prepare quarterly reports on fund utilization and status of projects following a prescribed format. These reports are to be posted within 20 days after every quarter on each LGU’s website, which was established by DBM for the purpose, and in at least three conspicuous public places. 

Two laws—Republic Act 7171 and RA 8240, later amended by RA 10351—provide tobacco-producing local governments 15 percent of total excise taxes collected annually on the sale of tobacco products.

Local governments’ shares, earmarked to “advance the self-reliance of tobacco farmers,” ballooned to more than P41-billion since 2016, an election year, when the national government started releasing a windfall of excise tax shares from the sin tax reform law, which imposed higher taxes on cigarettes. 

Prior to 2016, the funds were channeled through lawmakers, a scheme that the Supreme Court had declared unconstitutional due to post-enactment intervention in the implementation of the national budget. 

The budget releases were since accompanied with guidelines on the use of funds and “emphasized the concomitant posting and reporting (of) requirements to enhance transparency and accountability.”

Yet, the top recipients of tobacco excise tax shares since 2016 failed to comply with the DBM’s reporting requirements, VERA Files found.

Reports also showed that proceeds from the taxes are being used to fund projects that do not directly benefit tobacco farmers.

Budget Secretary Benjamin Diokno, in an interview with VERA Files, said noncompliance could be grounds for administrative action, including suspension from office.

“If you’re really strict, for example, if you’re the secretary of (the Department of Interior and Local Government), you can suspend them because they don’t comply with the requirement,” he said. 

“Or you can charge them before the Ombudsman for negligence of duty,” he added.

None of the four LGUs have uploaded on their respective websites an updated list of projects funded by tobacco excise tax shares, while only Balaoan posted disclosures on the bulletin board of its municipal hall, albeit not following the DBM-prescribed format. 

Documents furnished by DBM to VERA Files show all LGUs except Cabugao have submitted reports on fund use and list of projects as of 2017. 

All four have declined repeated requests by VERA Files both for a list of tobacco tax-funded projects and for an interview with the mayor or a representative. 

In Cabugao, Ilocos Sur, the recipient of the highest share—P1.34 billion—a staff of Mayor Josh Edward Cobangbang asked VERA Files to check with the local treasurer, only to be referred back to the mayor’s office.

Despite several attempts to contact the LGU’s unresponsive hotline number, the officials gave no guarantee to approve requests.

In Santa Cruz, Ilocos Sur, which received some P1.17 billion, Mayor Virgilio Valle, who through his staff had initially committed to a sit-down interview “anytime” and later to a phone interview following a province-wide power interruption, backtracked and withheld last minute the documents he had earlier approved for release.

In Balaoan, La Union, which was given P1.12 billion, first-term Mayor Aleli Concepcion referred VERA Files to the DBM for copies of their submissions.

“It will take us a considerable amount of time to prepare all the documents you are asking and our employees have other more important work to attend to,” she said in a letter reply.

In Candon City, Ilocos Sur, which has P1.04 billion in tobacco tax shares, VERA Files’ repeated requests to get in touch with Mayor Ericson Singson through Information Officer Leoncio Balbin, Jr., yielded only promises.

Reasons cited by Balbin include a pending inspection by disaster management officials, the Palarong Pambansa 2018 in Ilocos Sur, and “disputes” in the payment of the LGU’s landline.

According to DBM rules, the responsibility and accountability in implementing programs and the proper use of tobacco excise tax shares “shall rest upon the local chief executive and other local officials concerned.” 

Diokno explained that the monitoring of an LGU’s compliance with reporting requirements is beyond the DBM’s mandate, the “watchdog” being the Commission on Audit, which is mandated by the Constitution to examine and audit government spending. 

The department’s work ends after the money has been released based on what Congress has appropriated, he said.

“We can’t follow the money. Otherwise, the government will slow down. So, it's the responsibility of the recipient agency or local government,” Diokno said.

The DBM’s reporting requirements, such as the posting of disclosures on public places, shall be consistent with the DILG’s full disclosure policy, which mandates LGUs to keep constituents informed of how the local budget is managed, disbursed and used.

Sought for comment, the DILG says it does not have a hand in tracing the tobacco money trail.

“The department has no policy or monitoring mechanism on the use of tobacco funds of LGUs producing tobacco,” wrote DILG Director Odilon Pasaraba, who chairs the Bureau of Local Government Supervision, in-charge of managing the government’s full disclosure policy portal. 

Besides lax policies that allow for non-reporting of the proceeds of excise taxes, local officials also have almost unchecked discretion in deciding projects to fund, not requiring the national government’s approval or consulting farmers themselves, resulting in projects that do not directly benefit the tobacco farmers.

From 2016 to 2017, the bulk of the tobacco excise tax shares releases—more than P36 billion—went to Ilocos Sur, La Union, Ilocos Norte and Abra, provinces producing Virginia-type tobacco.

Seventy percent of the shares went to cities and municipalities, allocated using a formula based on the volume of production, while the remaining 30 percent went to provincial governments. 

Meanwhile, P5.4 billion went to Abra, Kalinga, Mt. Province, Ilocos Norte, Ilocos Sur, La Union, Pangasinan, Cagayan, Isabela, Nueva Vizcaya, Quirino, Tarlac, Occidental Mindoro, Misamis Oriental, Maguindanao and North Cotabato, their share in excises collected from burley and native tobacco.

Cities and municipalities in these provinces received 90 percent of the shares, and provincial governments the remaining 10 percent. 

The sharing scheme is new; substantial amounts of tobacco excise taxes used to be a “pork barrel” fund for legislators until the Supreme Court voided in 2013 any post-enactment intervention in the national budget.

The sharing scheme was the brainchild of then DILG Secretary Manuel Roxas II, who in 2015 wrote to then DBM Secretary Florencio Abad seeking “a system of automatic release of LGU shares in national taxes.” 

Reports collated by the DBM in 2016 show the lion’s share of excise taxes—76 percent from RA 7171 and 60 percent from RA 8240—financed infrastructure projects that have not necessarily benefited tobacco farmers. 

Locals say one example is the Candon Trade Center, a huge dome-shaped structure situated on a barren land along the national highway in Barangay Tablac.

Its steel gates, which have been pulled down and padlocked, were opened in December during the Feria de Candon, an exhibit of Ilocos Sur’s local products, such as wood carvings, furniture and vegetable produce, farmers said.

A Candon City farmer said when the trade center was built, they were told it was intended to be a marketplace where vegetables would be transported directly from the farms.

“No one uses it. No one goes there,” the farmer said, “No one had delivered vegetables there, even buyers don’t go there.” 

Documents obtained by VERA Files show a second phase of the trade center is in the works, with a budget of P4 million. 

Antonino Pugyao, chairperson of the 7,000-strong Solidarity of Peasants Against Exploitation (STOP Exploitation), calls it a “sleeping giant,” a common sight in tobacco-producing provinces. 

In some cases, buildings are labeled as farmers’ centers, but in reality, farmers do not benefit from them. “They just put ‘farmers’ to justify the use of funds.”

Roads, even those which have just been constructed, undergo repair, resulting in kickbacks for politicians whose families are into construction businesses, said Pugyao. 

Farmers say some roads had undergone three repairs already. “I don’t know why, maybe the ingredients weren’t complete,” he said in jest. 

Among the demands of STOP Exploitation is for LGUs to consult farmers before funding tobacco projects. 

“When the (LGU) implements the project, it should put up billboards to disclose that the project is funded by (tobacco excise shares) with this amount, so tobacco farmers would at least know where their hard-earned money goes.” 

The National Tobacco Administration, the agency mandated to uplift the condition of tobacco farmers, said efforts have been made to persuade local chief executives to shell out excise tax shares for programs that would benefit farmers, such as providing fertilizers, farm inputs and cash assistance. 

“But when it comes to implementation, they would be gone. They wouldn’t help. They would only give farmers one (kaban or sack) of fertilizer,” said NTA Administrator Robert Seares. 

“Because we cannot compel them,” he added.

While laws governing the use of tobacco excise taxes provide a menu of projects LGUs should stick to, Seares stressed the need for a separate policy, be it a law or an executive order, that would oblige local officials to allocate a specific percentage of their earnings directly to farmers. 

The NTA, he said, could not monitor the tobacco money trail. “We only see how much the money is, what their programs and plans are. They give us copies (of the releases), but we don’t have any hand.”

Periodic controversies, from former President Joseph Estrada’s plunder case to an ongoing probe in the House of Representatives against Ilocos Norte Gov. Imee Marcos, highlight the need for measures that would make public officials who fail to disclose the proceeds of billions of pesos in tobacco tax funds accountable.

Estrada was ousted in 2001, and was subsequently found guilty of plunder for, among others, allegedly receiving kickbacks worth P130 million in tobacco excise taxes.

Marcos, who is reported to be running for a Senate seat in next year’s national election, faced a congressional investigation in 2017 for allegedly releasing millions of tobacco funds for mini-trucks and minivans through cash advances. 

In the meantime, farmers, some of whom have tilled their lands for decades, could only wish for a small share of their hard-earned money. 

A farmer in Balaoan said they are made aware during barangay meetings of how the tobacco taxes would be spent, but by then the projects had already been signed off by local officials. 

Since last year, a Candon City farmer who has been planting tobacco for almost six decades started to receive a one-time cash assistance of P15,000 for every hectare of land. 

“If we don’t plant (tobacco), there would be no (excise tax) funds, they say,” the farmer said.

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This story was produced under the “Mga Nagbababang Kuwento: Reporting on Tobacco and Sin Tax Media Training and Fellowship Program” by Probe Media Foundation.