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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

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