BM Exclusive: ‘Illicit tobacco trade thrives, especially in Mindanao’

DESPITE logistical constraints and mobility restrictions in pandemic, illicit cigarettes are still finding their way to the Philippine shore, most of which are being sold in Mindanao at a cheaper price.

In an email to the BusinessMirror, Japan Tobacco International (JTI) (Philippines) Inc. noted that the number of illicit cigarettes entering the country rose to 6.8 percent in the first quarter from the same period last year.

Two-thirds of the illegal cigarettes are illicit whites, most of which are the “Two Moon” and “Astro” brands, JTI said. The remainder is counterfeit. The International Criminal Police Organization, or Interpol, defines illicit whites as “new cigarette brands produced legally in one jurisdiction but produced intentionally for smuggling into other countries where there is no prior legal market for them.”

“[The] highest prevalence of illicit trade is in Mindanao,” the tobacco company said, noting that illicit cigarettes are being sold more than tax-paid brands in the island. Based on industry observation, JTI said six out of every 10 cigarette packs sold are considered illegal.

JTI identified Polomolok, Davao, Ozamis, Zamboanga and Cagayan de Oro as having “the highest concentration of sari-sari stores peddling illicit tobacco” in Mindanao.

These are being sold at an average of P3 ($0.059) per stick, which is about three-times cheaper than the prevailing price of P8 ($0.16) to P10 ($0.20) per stick.

JTI said in a paper sent to the BusinessMirror the data “validates the previous industry finding that Mindanao for the year 2020 had the highest incidence of illicit tobacco trade at 14.6 percent.”

JTI noted that both domestic fake and smuggled non-duty paid cigarettes are “increasingly common” in the country, with 357.2 million seized sticks destroyed last year. The firm pointed out that the biggest ever cache of fake cigarettes was seized by Manila Customs in July last year, which was P187 million worth (about $3.68 million) at current exchange rates) and smuggled from Communist China.

Cause for concern

A person employed at the Intellectual Property (IP) Rights Enforcement Office (IEO) of IP Office of the Philippines (IPOPHL) told the BusinessMirror that cigarettes are still at the top list of counterfeited products pre-pandemic and up to now.

“Definitely, counterfeit cigarettes are cheaper and with many having less income today—and based as well on our preliminary seizures data—there is cause for concern for more fake cigarette trade in a pandemic,” the person said. As such, the office reminded legitimate cigarette manufacturers to be more vigilant.

Last year, IEO data revealed that the preliminary estimated value of seized cigarettes dropped to P8.12 billion from P10.66 billion. It has yet to finalize the 2021 report on fake cigarettes and other counterfeit products.

“While there is a slight decrease in value, it must be noted that total inspections and search warrants significantly reduced last year to 1,312 from 3,143 in 2019, partially due to the pandemic restrictions,” added the person who requested anonymity as investigations are ongoing. “So last year’s haul on cigarettes is still sizable.”

Apart from cheaper price, the JTI said that a cigarette is fake or smuggled if it has poor quality of packaging.

“Brand owners have their own tell-tale signs and markings especially in their packaging that would indicate the genuineness of their product or brand,” the person from the IEO said.

JTI noted that illicit cigarettes also evade taxes by using fake tax stamp.

Earlier this year, House Committee on Ways and Means Chairman Joey Salceda said that country is losing at least P30 billion in revenues annually due to cigarette smuggling.

Better enforcement

JTI Global Anti-Illicit Trade Operations Director Ian Monteith called for better enforcement at national borders to curb the illicit cigarette entry, in addition to improving knowledge sharing via public and private partnerships.

Monteith also cited the need for “coordinated global campaigns to inform consumers through increased awareness about the dangers of illegal tobacco and the consequences that arise through its trade.”

In a previous report, JTI said that illicit traders were unfazed by the pandemic. Rather, they are in a “wait-and-see” mode to smuggle the counterfeit goods, the company explained.

While production of fake cigarettes declined, JTI said it did not stop despite the pandemic, noting that Western markets even saw only “little reduction.”

The tobacco company also said that illicit transactions are now being done via online social networking platforms as well amid the digital shift in pandemic.

“The resourcefulness of criminals is such that the flow of illegal product is still manageable even when traditional sales outlets are put out of action,” it added.

For its part, the person from the IPOPHL unit said they are coordinating with National Committee on IP Rights and other relevant agencies to ensure that IP laws and other anti-counterfeit regulations are enforced properly.

“We also randomly monitor online commerce to check for counterfeit goods being offered for sale online, including counterfeit cigarettes,” the person from the IEO said.

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