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Fake cigarettes remain big challenge in PH market

‘Nearly one in every 5 cigarettes consumed in the Philippines originated through illicit channels in 2014,’ says Oxford Economics

STILL OPTIMISTIC. Despite sin tax and illicit cigarettes eating into profits, the new head of the country’s largest cigarette manufacturer says that the industry has good potential for profitable growth in the Philippines.

MANILA, Philippines– The new president of cigarette manufacturer Philip Morris Fortune Tobacco Corporation Incorporated (PMFTC) said that local players and the government have more work to do to ensure a level playing field in an industry struggling with illicit or fake goods.

The presence of fake cigarettes in the country remains a big challenge for the industry, PMFTC President Roman Militsyn said on the sidelines of the 9th Bright Leaf Agriculture Journalism Awards late last week.

“We need to continue to work on the illicit trade and make sure that there is a level playing field, make sure there is no contraband and counterfeit which is definitely a growing concern for us,” Militsyn said.

“As long as we continue as an industry to work in that direction plus [with] the support and enforcement from government agencies, I think the conditions for this market are very good,” he added.

Part of the Lucio Tan Group, PMFTC is a joint venture between Philip Morris International and Fortune Tobacco Incorporated and is the country’s largest cigarette manufacturer.

Militsyn took over as president of the firm last September, replacing Paul Riley who moved to Philip Morris International in Japan.

Costing tax and profits

Research conducted by the UK-based Oxford Economics last September showed that illicit cigarette consumption in the Philippines cost the government an estimated P22.5 billion ($476.6 million) in lost tax revenue last year, representing a 44.1% increase from 2013.

Oliver Salmon, Senior Economist for Asia of Oxford Economics, said that illicit cigarettes, both local and non-domestic, accounted for 19.4% of total consumption in 2014, the highest level since 2012.

Domestic fake cigarettes, those that are manufactured by the trademark holder but are illegally sold and consumed in the same market, accounted for 19 billion of the estimated 102.3 billion cigarettes consumed in 2014, Salmon said.

The remaining 0.9 billion was accounted for by non-domestic illicit cigarettes.

“Nearly one in every 5 cigarettes consumed in the Philippines originated through illicit channels in 2014,” he said.

He added that legal domestic sales (or tax paid volumes) declined again last year, to only 82.3 billion cigarettes.

Following the implementation of the new sin tax law in 2013, legal domestic sales have fallen by nearly 20 billion cigarettes.

Despite this, Militsyn said that the sin tax law can actually be beneficial to the industry by providing predictability.

“We think that it is a good roadmap for the fiscal environment for the industry going forward. I think it’s important to believe that it is for predictability, and to level the playing field,” Militsyn said.

The PMFTC head also said that graphic health warnings on cigarettes can have an impact on the Philippines’ cigarette industry, as experienced by other countries.

“To quantify is difficult because different countries and different smoking population have different dynamics but yes it has an impact,” he said.

Milistyn did point out that the cigarette market will continue to exist despite the fact that people are becoming more health conscious as some adults still decide to smoke.

“We expect some decline but we also believe that the industry will continue to be there and that [it has] good potential in terms of the profitable growth of the industry going forward,” he added. –

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