The government stands to lose P30.57 billion in revenues this year due to illicit cigarette trade, the government’s tax chief said citing a recent study.
Bureau of Internal Revenue (BIR) commissioner Romeo Lumagui Jr. in his opening statement during a media forum in Manila yesterday cited the study conducted by the University of Asia and the Pacific (UA&P) and the Federation of Philippine Industries, Inc., as he pointed out the highly damaging impact of illicit trade on the national economy and on revenue collections.
The study showed that between 2018 and 2022, the illicit trade in cigarettes is estimated to have reduced the country’s gross domestic product by an average of 0.39 percent; decreased the average household income by 0.63 percent; and cut employment by 4.9 percent.
“The situation with regard to revenue collections is just as disturbing. The UA&P study shows that the government stands to lose approximately P30.57 billion in revenues, a figure that is almost 20 percent higher than the P26.19 billion in revenue foregone in 2022. This will also mark the fourth consecutive year that lost revenues have increased in volume,” Lumagui said.
The UA&P study warns, however, foregone revenues are estimated to increase further to P33.7 billion next year, P36.8 billion by 2025, P39.8 billion by 2026 and jump to P42.54 billion in 2027.
“To give an idea of the impact of these revenue losses on the country, just consider that the P26.19 billion in lost revenues in 2022 could have funded the construction of 57,000 socialized housing units, 8,642 classrooms and 75 hospitals,” Lumagui said.
“These figures highlight the fact that illicit trade has indeed grown dramatically, especially during the pandemic years, and have cost the Philippines many lost opportunities to uplift the quality of life for millions of Filipinos,” he added.
The BIR chief said to date, the bureau has undertaken four major raids, the most recent of which was conducted last July that saw the raiding of 748 stores, warehouses, and different establishments.
An estimated P15.8 billion worth of fake cigarettes were seized in facilities engaged in the manufacture, packaging and distribution of cigarettes.
Lumagui said the country’s archipelagic landscape as the biggest challenge, as the number of islands and points of entry make it even tougher to monitor and control the movement of illicit items.
“It is imperative that the government improve its border defenses, to support the tax administration in its efforts to control the illegal trade of cigarettes. Moreover, effective intelligence work and interagency coordination among various law enforcement agencies such as the BIR, the Bureau of Customs, the Philippine National Police, Coast Guard and the National Bureau of Investigation, is urgently needed, to support collaborative efforts to toughen operations against cigarette smuggling,” Lumagui said.
“Attention must also be focused on industrial parks and economic and freeport zones, which are also abused and serve as cover for illicit tobacco manufacturing facilities,” he added.
The BIR chief also said efforts must be made to develop a comprehensive regulatory framework on the sale of cigarettes through the various e-commerce platforms, so that only legitimate and registered manufacturers, importers and/or traders will be involved in the sale of legitimate brands of cigarettes.
Lumagui said the bureau has developed a series of endeavors intended to further enhance the impact of tax laws that relate to the tobacco industry.
Among these are the intensified monitoring of supply chains and distribution channels of tobacco products; the plan to enhance the Track and Trace System and the security features of the Internal Revenue Stamp Integrated System; strengthening of connections with other government agencies and coordination with Asian neighbors; and lastly, the review and update of existing rules and regulations pertaining to the illicit trade of tobacco products.
Lumagui said that the possibility of imposing stiffer penalties on those who are involved in illicit trade is already being looked into.
“We will soon issue a Revenue Memorandum Circular updating the schedule of penalties and fines for violations of the excise tax provisions of the National Internal Revenue Code of 1997,” Lumagui said.
