Download PHILIPPINE TOBACCO EXCISE REFORMS NOT MEETING FULL

PHILIPPINE TOBACCO EXCISE REFORMS NOT MEETING FULL POTENTIAL
Three-fold increase in illicit cigarettes results
in potential revenue shortfall of 15.6 billion Pesos in 2013 alone
JUNE 5, 2014 – At a time when the Philippine Government is looking to plug revenue leakages,
a groundbreaking report from UK-based Oxford Economics and the US-based International Tax
and Investment Center demonstrates that one year after the imposition of its tobacco excise tax
reforms, multiple billions of pesos are not being collected. These funds could otherwise be used
to execute critical priorities in healthcare, and support local government units and struggling
farming communities.
Key full year findings for the 2013 Philippines Update in the Asia-11 Illicit Tobacco Indicator*
include:
•
The level of illicit cigarettes consumption tripled, compared to the previous year, posing
a growing threat to revenues. Consumption illicit cigarettes accounted for approximately one
out of five cigarettes consumed in the country
o 19.1 billion illicit cigarettes were consumed in 2013, of which 90% are domestically
manufactured cigarettes.
•
Legal tax-paid cigarettes totaled 86.3 billion cigarettes in 2013, down 15.6% compared
to 2012
o However, this decline was almost fully offset by an increase in illicit cigarette volumes,
resulting in an overall consumption of cigarettes declined by only 3% in the year
following the excise tax increases.
•
Total tax loss associated with illicit cigarette consumption was PHP15.6 billion
o Lost excise tax revenue alone represents 15.3% of the potential total excise tax
revenue.
“While the administration can be pleased they have achieved a 114% increase in tobacco excise
revenue in 2013 as a result of the new tax regime, one cannot ignore the tax foregone as a result
of this very rapid growth in the illicit cigarette trade, with domestic illicit cigarettes making up the
lion’s share of this” said Mr. Adrian Cooper, the CEO of Oxford Economics.
Domestic illicit is defined as cigarettes that are produced to be illegally sold and consumed in the
same country/market, typically without the payment of applicable taxes.
“The rise in the consumption of domestic illicit cigarettes followed the sharp increase in the price
of cigarettes, particularly in the ‘super low-price’ segment where widely available and popular
brands are observed selling below total tax and cost of production.
“Not only is this indicative of tax evasion, it also undermines the public health goal of the tax
reforms, to make cigarettes less affordable. We understand this practice is currently the subject
of a number of investigations, and we encourage vigilance and perseverance in addressing the
issue.
“Experience in neighboring countries, like Malaysia, where the illicit cigarette trade accounts for
as much as 40% of the total market, has shown just how difficult it is to shake this problem once
it is entrenched,” said Mr. Cooper.
“If left unchecked, this already serious problem in the Philippines could run out of control.
“To effectively tackle the issue of illicit trade, the best model includes a combination of swift
enforcement, the application of tough penalties, combined with close cooperation and information
sharing between legitimate manufacturers and law enforcement,” said Michael Ellis, head of
INTERPOL’s Trafficking in Illicit Goods and Counterfeiting Unit.
Further information:
Orly S. Ramas, Leo Burnett Public Relations
Tel: 0917 515 6747 Email: [email protected]
About Oxford Economics:
Oxford Economics was founded in 1981 as a commercial venture with Oxford University’s
business college to provide economic forecasting and modelling to UK companies and financial
institutions expanding abroad. Since then, we have become one of the world’s foremost
independent global advisory firms, providing reports, forecasts and analytical tools on 200
countries, 100 industrial sectors and over 3,000 cities. Our best-of-class global economic and
industry models and analytical tools give us an unparalleled ability to forecast external market
trends and assess their economic, social and business impact.
About the International Tax and Investment Center:
The International Tax and Investment Center (ITIC) is a US-based independent nonprofit research
and education foundation. ITIC serves as a clearinghouse for information on best practices in
taxation and investment policy, and as a training center to transfer such know how to improve the
investment climates of transition and developing countries, thereby spurring formation and
development of business and economic prosperity.
*The Asia-11 Illicit Tobacco Indicator– 2013 Update for the Philippines:
The purpose of this report (the “report”) is to define and measure Illicit Consumption of cigarettes,
and the associated government revenue losses, in the Philippines in 2013. More detail on the
methodology can be found in the report Annex. The report has been prepared by the International
Tax and Investment Center (ITIC) and its partner, Oxford Economics (OE).
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