ILLICIT CIGARETTE CONSUMPTION INCREASES IN 2014 – EXPERTS ANTICIPATE IMPROVEMENT WITH NEW TAX STAMP SYSTEM
Hong Kong (Sept. 29, 2015) – Illicit cigarette consumption in the Philippines rose in 2014, accounting for 19.4 percent of total consumption, but experts are hoping for a marked improvement in 2015 with the full year implementation of the tax stamp system of the Bureau of Internal Revenue (BIR).
Illicit consumption cost the government an estimated P22.5 billion in lost tax revenue (excise and VAT) in 2014, representing a 44.1% increase from 2013, according to research conducted by the UK-based Oxford Economics released today.
Domestic illicit, or cigarettes that are manufactured by the trademark holder, but are illegally sold and consumed in the same market, without the payment of excise taxes and VAT, accounted for 19 billion of the estimated 102.3 billion cigarettes consumed in 2014.
“In line with the amendment of the National Internal Revenue Code of 1997, it is anticipated that the affixture of tax stamps introduced on 1st December 2014 will ‘further improve tax administration’ and ‘deter mis-declaration of removals’ ”, the report said.
The market report on the Philippines is part of the Asia-16 Illicit Tobacco Indicator 2014 which includes Australia, Brunei, Cambodia, Hong Kong, Indonesia, Laos, Macao, Malaysia, Myanmar, Pakistan, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
Oliver Salmon, Senior Economist for Asia of Oxford Economics, presented the results of the research in a briefing today.
Salmon expressed hope that the volume of domestic illicit consumption would decline in future years following the Philippine government’s action to address the problem with the imposition of the new tax stamp program last December, providing such actions were part of a wider campaign to address the problem of illicit trade in cigarettes.
At the same time, significant tax-led price increases have left the market exposed to the threat of cheap illicit cigarettes coming from other countries, as well as counterfeits of well-known brands.
“As evidenced by this report, significant price increases over the last few years have led to the erosion of the legal market for cigarettes, with the illicit trade filling the gap” said Mr. Salmon.
He noted that legal domestic sales (or tax paid volumes) declined again last year, to only 82.3 billion cigarettes. Overall, following the implementation of the new sin tax law in 2013, legal domestic sales have fallen by nearly 20 billion cigarettes.
Former Budget Secretary Benjamin Diokno, an adviser to the International Tax and Investment Center (ITIC) who reviewed the report, said the rise in the incidence of domestic illicit consumption for two consecutive years builds a compelling case for the imposition and strict enforcement of the BIR’s new Internal Revenue Stamps Integrated System (IRSIS).
Diokno said IRSIS, or the tax stamp program of the BIR, if consistently enforced and monitored, should be an effective tool to bring down the incidence of domestic illicit consumption, as well protect government revenues, by plugging loopholes.
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