Cigarette Smuggling

http://www.mb.com.ph/oxford-economics-wants-debate-with-seatca/

United Kingdom (UK)-based Oxford Economics wants a debate with health advocates to defend its assessment that illicit cigarette trade in the Philippines had proliferated following the enactment of the new excise tax regime.

In a briefing, Oliver Salmon, Oxford Economics senior economist for Asia defended his group’s series of reports about illicit cigarette trade in the Philippines and its impact on government revenue and legitimate industry players.

According to Salmon, Oxford Economics’ annual illicit indicator report for Asia is an independent study despite being funded by cigarette companies.

“We’ve always maintained full academic control, at the end of the day, the figures in front have our name on it, no one else is,” Salmon told reporters in a briefing in Hong Kong.

“It’s our reputation, our credibility with which this figures go out into the public, so we’ll never put anything out there that as a company, we aren’t fully satisfied with the credibility,” he added.

Earlier, the Southeast Asia Tobacco Control Alliance (Seatca) rejected the research report by Oxford Economics and Washington D.C.-based International Tax and Investment Centre (ITIC) due to funding issues.

“In terms of how we are funded, we’d like to think we are very open, within the report, we are very upfront about the conditions under which we have been employed to conduct this research, so we’ve never tried to hide the fact about who funded this report,” Salmon said.

He also disclosed that Oxford Economics and ITIC had tried to hold dialogues with Seatca since 2013 and discuss the issues raised by tobacco control advocates.

“We have tried to actively engage Seatca. Our colleagues and partners, ITIC, have tried to actively engage Seatca, in order to have a conversation and discuss the issues,” Salmon said.

“Clearly, we both agree that illicit trade is an issue in the Asian region, but specifically in the Philippines, and we want to collaborate where possible,” he added.

Salmon also said that Oxford Economics is prepared to debate with people who disagree with the report.

“We’re happy to be open, we’re happy to debate the subject with people who disagree with us. We welcome this kind of conversation, and we hope we can continue to have that debate with Seatca going forward,” the economist said.

“When we spoke at the beginning of the presentation, I wanted to be upfront about the methodology, it has a very detailed methodology,” he added.

According to Oxford Economics, government tax loss from illicit consumption of cigarettes rose to about P22.5 billion last year, adding “one in every five cigarettes [in the Philippines] originated from illegal channels.

http://www.mb.com.ph/illicit-cigarette-consumption-in-ph-up-4-1-in-2014-oxford-economics/

Hong Kong — UK-based Oxford Economics said illicit cigarette consumption in the Philippines rose 4.1 percent to 19.9 billion sticks in 2014, the highest level since its first Asia Illicit Tobacco Indicator Report in 2012, or about 19.4 percent of the total consumption.

However, 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).

In a press briefing, Oliver Salmon, Senior Economist for Asia of Oxford Economics, said tax revenue loss from illicit consumption estimated at P22.5 billion in 2014, representing a 44.1 percent increase from 2013.

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 misdeclaration of removals’[1]”, the report said.

For legal domestic sales (or tax paid volumes), it declined 4.6 percent to 82.3 billion cigarettes last year, following the implementation of the new sin tax law in 2013 or successive excise tax rate increases.

Despite lower legal domestic sales, excise tax revenues increased by 5.6 percent to P74.3 billion in 2014.

In 2014, excise rates were increased to P17 per pack of low-tier cigarettes and P27 per pack of high-tax tier cigarettes.

The price per pack of 20 of the cheapest brand rose 22 percent last year.

The price of the most sold brand remained unchanged until November 2014 when it increased by 24 percent.

In terms of total cigarette consumption, both legal and illicit, it dropped 3 percent to 102.3 billion sticks, the lowest level since 2012.

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.

Salmon said 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, he said.

“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,” Salmon said.

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

http://www.manilatimes.net/govt-loses-about-p22-5b-in-excise-and-vat-revenues/221265/

UNTAXED CIGARETTE CONSUMPTION UP 4.1% IN 2014

by MAYVELIN U. CARABALLO

Hong Kong: More untaxed cigarettes were smoked in the Philippines last year, subsequently increasing foregone government revenues, a study released here Tuesday said.

Data from a Philippine market report, prepared by the International Tax and Investment Center (ITIC) and Oxford Economics, put the volume of 2014 illicit cigarette consumption at 19.9 billion sticks, up 4.1 percent from the previous year. The report is an extract from the forthcoming Asia-16 Illicit Tobacco Indicator 2014, which is set for release in the fourth quarter of this year.

Illicit consumption refers to the use of non-domestic cigarettes —smuggled goods or counterfeit products from another country —and locally made sticks that are both sold without the payment of required taxes.

Philippine-made cigarettes accounted for almost all of illicit consumption, which at 19 billion sticks was 10.8 percent higher. Illicit non-domestic cigarette use, at 900 million sticks, was down 55.3 percent from 2013.

Illicit consumption cost the government an estimated P22.5 billion in lost excise and value-added tax revenues, the report noted.

Experts, however, are hoping for a marked decline in illicit cigarette consumption this year with the implementation of the Bureau of Internal Revenue’s (BIR) tax stamp program.

“In line with the amendment of the National Internal Revenue Code of 1997, it is anticipated that the affixture of tax stamps introduced on December 1, 2014 will ‘further improve tax administration’ and ‘deter mis-declaration of removals’,” the report said.

In Tuesday’s briefing, Oxford Economics Senior Economist for Asia Oliver Salmon noted that the government’s move should be part of a wider campaign to address the illicit cigarette trade problem.

He pointed out that significant tax-led price increases had left the market exposed to the threat of cheap cigarettes 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” Salmon said.

He noted that legal domestic cigarette sales (or tax paid volumes) fell further last year to 82.3 billion sticks. Overall, following the implementation of the new sin tax law in 2013, legal domestic sales were said to have fallen by nearly 20 billion sticks.

University of the Philippines economist Benjamin Diokno, an adviser to the ITIC who reviewed the report, sa id the rise in domestic illicit cigarette consumption had built a compelling case for the BIR’s new Internal Revenue Stamps Integrated System as a means of protecting government revenues