No less than Finance Secretary Carlos G. Dominguez III has ordered the Internal Revenue (BIR) and Customs (BOC) bureaus as early as September last year to intensify the campaign against smuggled and counterfeit cigarettes in the wake of multibillion tax-evasion charges filed against a local industry player.
The good secretary instructed the two tax-collection agencies to watch out for counterfeit and smuggled cigarettes and even cited the brand “Two Moon” as one of them.
He repeated the same marching order on January 24 and even expressed hopes that the “close coordination” between the BIR and BOC would again result in catching the next big tax evader in 2018.
But even before the Tax Reform for Acceleration and Inclusion (TRAIN) was formally signed into law, smuggled cigarettes like Two Moon, Far Star, Fort and D&B and even fake versions of legitimate brands are being openly sold in some provinces of the country.
These brands are not registered with the BIR and bear no tax stamps, which should indicate that these are contraband and should be removed from the shelves and the perpetrators prosecuted.
Post-TRAIN signing, Two Moon and similar smuggled brands continued to be rampantly sold in Nueva Ecija, Tarlac, Pangasinan, Cebu, Batangas, Mindoro, Laguna, Mindoro, General Santos City and Zamboanga, to name a few.
The illicit cigarettes are sold for as low as P25 to P30 per pack, below the TRAIN excise tax of P32.50 per pack.
Because these products do not bear tax stamps, there’s already a nonpayment of P32.50 tobacco excise tax per pack as mandated in the TRAIN. For every 21,000 master cases of smuggled and counterfeit cigarettes sold openly in a month, the government loses about P1.8 billion, plus the millions worth of tax stamps that were never purchased and affixed on the packs.
If the TRAIN leaks continue up to a year, the state losses would be a staggering P12 billion to P13 billion just for this year.
This means less cash to bankroll the construction of 629,120 public-school classrooms, the hiring of 2,685,101 public-school teachers; the establishment of 60,483 rural health units, 484,326 barangay health stations and 1,324 provincial hospitals; or building 35,745 kilometers of paved roads, 786,400 kilometers of temporary bridge upgrades; or 2,665,763 hectares of irrigated land that were identified as TRAIN beneficiary projects.
Meanwhile, the syndicates running this racket would be earning a conservative P1.08 billion per month, or a minimum of P17.2 billion in 2018.
Local Government Units, where the rampant selling takes place, are likewise victims since the groups behind this nefarious activity do not apply for and pay business permit and local tax.
Unsuspecting smokers are also put in much-graver health risks since smuggled and counterfeit cigarettes are made of questionable materials.
Anti-tobacco groups and government health advocates should have reason to be worried since this reverses their success in cutting down smoking incidence as illicit cigarettes are priced so low that they become more accessible to everyone.
In 2012 as the sin-tax law was being rolled out with calibrated tax hikes, there were an estimated 25 million Filipino smokers consuming 110 billion cigarette sticks, or about 5.5 billion cigarette packs.
Fast forward to 2017, the number of smokers dropped to 16.5 million, lighting up 72 million cigarette sticks, or 3.6 billion cigarette packs, translating to a reduction of 8.5 million Filipinos who finally quit smoking.
All these translate to a dramatic slide in smoking incidence from 40 percent in 2012 to 30 percent in 2017, despite the fact that almost 8 million more Filipinos joined the population during the five-year period.
But with smuggling on the rise and fresh attempts to include again the tobacco sector in the next TRAIN package, we could be just aiding the smugglers and counterfeiters.
Abrupt tax increases could turn the Philippines into another Malaysia, where the total industry size is 16 billion cigarette packs with 7 billion being legit consumption, while 9 billion are smuggled cigarettes from its neighboring countries.
Our law-enforcement agencies, if only aware of the impact of smuggled cigarettes to nation building, should immediately seize the unregistered cigarettes with no tax stamps since this is clear proof of tax evasion.
The challenge of Secretary Dominguez to the BOC and BIR is timely since the next big-time cheat is just lurking in the corner, peddling Two Moons and other fake brands.
Thus, before higher “sin” taxes are discussed again, let’s fix the TRAIN leaks first.
E-mail: ernhil @yahoo.com.