THE country stands to lose at least P60 billion this year due to the proliferation of illicit cigarettes in the market that could reverse gains from the state’s sin taxes in curbing smoking, the head of the House Committee on Ways and Means said.
Albay 2nd District Rep. Joey Sarte Salceda pointed out that the country’s problem with illicit cigarette trade is worsening with the advent of the internet, which made the sale of illegal products more accessible to everyone.
“The elephant in the room is that we have a cigarette excise tax collection problem,” Salceda said in his speech in a forum organized by the Sin Tax Coalition on Tuesday in Manila.
Citing his team’s computations, Salceda said the state’s revenue losses this year due to illicit trade in cigarettes would amount to at least P60.6 billion with the total illicit cigarettes circulating in the market reaching about 2.02 billion sticks.
The proliferation of illegal cigarettes would also drive the country’s health costs by about P29 billion since smoking prevalence would not be curtailed, Salceda added.
“If this continues, [the health] cost [of smoking-related diseases] swells to P217 billion this year,” he said, noting that last year’s health costs were pegged at about P188 billion.
Salceda emphasized that the national government’s cigarette excise tax collections have been declining in recent years at an alarming rate.
In 2021, he noted that collections were at 173.9 billion before declining to P160.4 billion in 2022.
“The 2022 decline was the largest ever since the 2012 Sin Tax Reform. The only other time revenues declined over the same period was in 2016, when revenues went down from P100.0 billion in 2015 to just P94.5 billion in 2016,” he said.
“The decline in revenues in 2016 was a wake-up call for the government, which decided to strike heavily against Mighty Corporation, which eventually settled for a P25-billion tax payment. That restored the uninterrupted upward trend in revenue collections, so much so that even in 2020, during the height of the pandemic, revenues still grew,” he added.
Salceda said pieces of evidence point to a reduced cigarette consumption due to higher sin taxes. He noted that removals of cigarettes from factories declined from 4.3 billion sticks in 2019 to 3.3 billion sticks in 2020.
However, citing the World Bank, Salceda pointed out that the decline in legitimate removals of cigarettes “should not have been that high.”
“Smoking prevalence only declined from 23.4 percent in 2019 to 23.0 percent in 2020. A decline of 1 billion sticks could not have been accounted for by an incidence decline of just 0.4 percentage points alone,” he said.
“Something else happened, and it is more logical to suspect that illicit trade accounted for much of the decline in licit removals. While revenue recovery helped mask the problem in 2021, 2022 figures stare us in the face, with the problem becoming more undeniable,” he added.