CITY OF SAN FERNANDO—Illegal cigarettes are either smuggled into the country or domestically sourced, but with the discovery of illegal cigarette factories in Pampanga and Pangasinan recently, illegal cigarettes are now made and packed clandestinely in big operations run by foreign nationals.
Illegal cigarettes deprive government of revenue and are hurting the country’s legitimate tobacco industry. This recent development poses a serious concern for government and the tobacco industry sector and an urgent realization for the need to further efforts against illegal cigarette trade.
There is no current data on the number of illegal cigarettes clandestinely produced by syndicates in the country. There is, however, data on illicit domestic cigarette consumption. The “Asia-11 Illicit Tobacco Indicator” study showed that the consumption of domestic illicit cigarettes nearly tripled to 17.1 billion in 2013 alone. This is a big leap from only 6.1 billion in 2012.
Even the Oxford Economics and International Tax and Investment Center said that the potential revenue loss for government from illegal cigarettes was at P15.6 billion in 2013.
Illicit cigarettes are domestically produced cigarettes; illegally sold and consumed without paying applicable taxes depriving government of revenue and run in competition with legal, taxed cigarettes in the market. Smuggled cigarettes on the other hand are produced from international sources and shipped to the Philippines or vice versa.
The Oxford Economics and International Tax and Investment Center also said that tax losses in 2013 alone from illicit cigarettes was at 497 percent and went to P15.6 billion from P2.6 billion in 2012.
In 2015, Oxford Economics senior economist Oliver Salmon said that 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.
The country’s total legal cigarette consumption is currently at 80.4 percent. This only accounts to an estimate of 82.3 billion cigarettes.
Big players in the cigarette manufacturing business have also joined in efforts to curtail illicit cigarette consumption. This as most of their popular cigarette brands are often the victims of counterfeiting.
The Department of Finance reported that over fake cigarettes worth P1 billion, fake tax stamps worth approximately P175 million in taxes, along with raw materials, machines for cigarette manufacturing and other paraphernalia were seized by authorities in separate raids in Pangasinan, Pampanga and Bulacan.
The Pangasinan raid was the biggest. Officials discovered four warehouses found to be counterfeiting popular cigarette brands in Villasis, Pangasinan which led to the seizure of various materials for cigarette manufacturing and the arrest of 24 undocumented foreign nationals.
In Pampanga, a facility was found counterfeiting popular cigarette brands. Officials seized “5.5 million pieces of fake unused cigarette strip stamps worth approximately P175-million in excise taxes and VAT (value added tax).”
The Pampanga facility was reported to produce some 200,000 packs of cigarettes per day.
Just this October, P7.5 million worth of counterfeit popular cigarette brands were confiscated by customs officials in two warehouses in Cagayan de Oro City, one of the biggest confiscation of counterfeit cigarettes outside of the country’s custom ports. Officials confiscated hundreds of boxes of cigarettes brands, including Marlboro, Lucky Strike, Winstons, and Camel.
Just this year, there have been a dozen operations against illegal cigarettes resulting in arrests of vendors and distributors in Cabanatuan City in Nueva Ecija, Santa Cruz in Manial, Guguinto, Bulacan and as far as Zamboanga City, Cebu and even Tacloban.
Those arrested were charged for violating Section 155 in relation to Section 170 of Republic Act 8293, otherwise known as the Intellectual Property Code of the Philippines.
They could also be held for violating Republic Act 7394, or the Consumer Protection Act, and the National Internal Revenue Code, with penalties ranging from one year to 12 years imprisonment and a fine of up to P200,000 or both.
No BIR stamp, No Sale
Last October 1, 2014, the BIR Revenue Memorandum Circular 72-2014 required all locally manufactured cigarette packets to bear tax stamps. Imported cigarettes were required to have the same stamps in 2015.
The BIR said that this allows government authorities to secure the distribution of cigarettes and also prevent and reduce illicit trade. It is, therefore, illegal for storeowners to sell unstamped cigarette packs.
The sale of cigarettes without necessary stamps is therefore considered illicit and opens criminal persecution against the individuals behind the sale and processing of such cigarettes.
Despite of this, illegal cigarette production continuous to be a problem as seen in different raids of clandestine facilities producing illegal cigarettes and the continuous sale of illegal cigarettes.
Unless government comes up with more concrete steps reduce the sale of illegal cigarettes considerable, illicit cigarette trade will continue to be deteriorating factor in the community as it reduces tax revenue intended for the national government and harms legitimate businesses of law-abiding tobacco manufacturers. As of press time, fake cigarettes remain a big challenge to the country’s billion peso cigarette industry.