January 11, 2025 | 12:00am
MANILA, Philippines — The government should lower the tobacco excise tax rate and strengthen the enforcement of laws against illicit trade to address declining tobacco tax revenue, according to a think tank.
During the Senate public hearing on illicit trade, Minimal Government Thinkers president Bienvenido Oplas Jr. called for the rollback of the tax rate to P50 per pack.
In 2024, the excise tax for a pack of 20 sticks of cigarettes stood at P63, higher than the P60 per pack in the previous year.
Using the Laffer Curve analysis, Oplas said the optimal tax rate is P50 per pack, noting that the government was able to collect P176 billion in tax revenues when this was the rate in 2021.
“From peak revenues of P176 billion in 2021 when the tax rate was P50 per pack, it declined to P160 billion in 2022 when the tax rate was P55 per pack, and further down to P135 billion in 2023 when it was P60 per pack,” Oplas explained.
“While collections from alcohol and sweetened beverage products continue to rise or flatline, collections from tobacco and cigarettes continue to decline,” he said.
Dondanon Galera, head revenue executive assistant at the Bureau of Internal Revenue, said total tobacco excise tax collection in 2024 stood at P134 billion, about P51 billion short of the BIR’s P185 billion target and relatively flat from the P134.91 billion collected in 2023.
Galera said the change in consumption patterns of smokers, including the shift to vape, and the prevalence of illicit trade in the country curtailed the BIR’s capacity to hit its collection target.
He admitted that sellers of illicit cigarettes and vape products became “more brazen” last year, noting that they are even selling on online platforms.
The BIR conducted at least 141 raids on illegal vapor products and three on illicit cigarettes last year, Galera said.
Oplas stressed that the major beneficiaries of high tobacco taxation are the “smugglers, criminals, terrorists and their protectors in government.”
“More illicit tobacco means more smoking (cheap illegal), not less, actually happening,” Oplas said.
Philippine Tobacco Institute president Jericho Nograles said the increase in illicit cigarette supply in the country coincided with the uptick in the number of Filipino adult smokers in recent years.
He cited data from the Food and Nutrition Research Institute showing that the percentage of adult Filipino smokers rose to 23.2 percent in 2023 from 18.5 percent in 2021.
The increase mirrored the rise in illicit cigarette trade in the country, which rose to 19.8 percent in 2023 from 13.6 percent in 2021 based on Euromonitor data, Nograles added.
Nograles said the diminishing state revenues on tobacco excise taxes could be attributed more to tax leakages than the change in consumption patterns from cigarettes to vape.
“The shift is minimal compared to the presence of illicit trade,” Nograles said.
Meanwhile, advocacy organization Philippine Legislators’ Committee on Population and Development (PLCPD) condemned the recent underhanded move in the House of Representatives to reduce sin taxes on tobacco.
The group lamented that a provision was inserted out of the blue into the Anti-Illicit Tobacco Trade bill before health advocates and relevant government agencies could present their position.
“As they say, when something is done in secret, it is likely because they know it is wrong. The proposal to reduce sin taxes blatantly favors an industry desperate to make their destructive products, including cigarettes and vapes, more accessible and affordable to the public, especially to young people whom they target as replacement smokers,”
PLCPD executive director Rom Dongeto said.
The PLCPD said the recent move through the House ways and means committee hearing chaired by Albay Rep. Joey Salceda on Jan. 7 was a reckless indifference to public welfare, especially amidst an ongoing youth vaping crisis, which is a direct result of weakening vape and tobacco regulations in the country.
The PLCPD also slammed the flawed argument of some legislators who link high tobacco taxes to the rise of illicit trade, calling it a baseless and unscientific excuse to bow to the will of the tobacco industry
“First and foremost, the purpose of sin taxes is not for revenue generation. It is specifically a health measure to offset the health and economic burdens caused by destructive industries like tobacco,” Dongeto said.
“Why turn a health measure into a cash grab when it’s meant to help us transition away from tobacco and avoid its future costs? Instead of reducing taxes or implementing a moratorium, the government should focus on addressing enforcement issues,” he said.
Dongeto cited that in a Senate hearing on a resolution addressing illicit tobacco trade, Sen. Sherwin Gatchalian said that weak enforcement is the reason for the loss in tax revenue due to illicit trade in tobacco.
He said his is supported by numerous studies indicating that weak enforcement and governance are the main causes of illicit trade.
Even the World Health Organization (WHO) found that illicit cigarette consumption declined after tax increases.
“We urge our lawmakers to stop deceiving the public by claiming that this is a measure against illicit trade. The real and clear aim of reducing sin taxes on tobacco is to make a profit for an industry from which they benefit,” Dongeto said. — Jose Rodel Clapano
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