THE Philippines is estimated to be losing P26 billion in revenues per year due to the illicit tobacco trade, House Ways and Means Committee Technical Working Group chair Rep. Jericho “Koko” Nograles said—an estimate that was about eight times more than official estimates averaging over P3 billion.
This amount could have funded a huge portion of the full-year budget of some departments or finance the construction of 10,000 school buildings, among others, said the lawmaker from Puwersa ng Bayaning Atleta (PBA) party-list.
Nograles based his own estimate of annual revenue losses from smuggled tobacco products on Euromonitor International’s findings that 13 percent of Philippine cigarettes are illegal. Moreover, Euromonitor said six of 10 cigarettes sold in retail in some areas in Mindanao are illegal.
“If P180 billion of excise taxes were collected by BIR in 2021, that means there is a shortfall of P26 billion there at 13 percent,” Nograles said in a webinar, speaking partly in Filipino.
He attributed the abundance of illicit tobacco trade to unemployment and decreased income, criminal groups’ exploiting public demand for cheaper goods, and higher taxes leading to higher prices that lead to greater criminal opportunities.
On top of these, he said there was a limited supply of tobacco products due to Covid-19 pandemic-induced lockdowns, and lack of capacity to enforce regulations given the sudden and significant growth in online purchases.
He held the P26 billion against the budgets of Department of Justice “which is P45 billion per year, Department of Labor and Employment which is only P37 billion per year, National Irrigation Administration…P31 billion per year, 10,000 school buildings at P30 billion per year.”
Official estimates
However, the lawmaker’s estimate of revenue losses from the illicit tobacco trade is much higher than the estimates of the Bureau of Customs (BOC) and Bureau of Internal Revenue (BIR) based on their actual apprehensions in recent years.
In the same webinar, BIR Head Revenue Executive Assistant Atty. Beverly S. Milo of the Large Taxpayers Service reported that they estimated a total of P3.74 billion in revenue losses due to illicit trade from 2018 to 2021.
For its part, Customs Assistant Commissioner of the Post-Clearance Audit Group and spokesman Atty. Vincent Philip Maronilla said foregone excise taxes because of illicit tobacco products amounted to P2.98 billion from 2019 to 2022. During the period, the BOC seized an estimated P8.08 billion worth of illicit tobacco products.
Nonetheless, Milo and Maronilla conceded that the lawmaker’s estimate of revenue loss in the illicit tobacco trade is more accurate.
“So we can actually say that the data as presented by the honorable chair here is considered as more reasonable because what we are presenting are the results of activities that have been conducted by the BIR. And from that activities, we can say that we have some limitations because of lack of personnel, and also during that two years pandemic, we were not able to really operate on massive implementation because we cannot go into some areas and we know there are lots of limitations,” Milo said.
What to do?
To combat illicit trade, Nograles urged the National Tax Administration to be more involved in the fight against illicit trade by ensuring the registration of manufacturers and importers and participating in the audit with the BIR and the BOC.
He also said the Department of the Interior and Local Government should also direct local government units as well as the National Police Commission to be more vigilant against illicit trade.
Moreover, he recommended that the Department of Trade and Industry educate retailers on the consequences of purchasing and re-selling illegal products; the Department of Finance to ensure the streamlining of BIR and BOC regulations, and better freezone governance and enforcement for the Philippine Economic Zone Authority so that investors will feel more secure.
Maronilla also agreed with Nograles’s recommendations, saying these are good first steps to take to address the problem.