‘Lose-lose’: Senate flags low tobacco taxes, smoking rise due to smuggling

Senator Sherwin Gatchalian on Thursday flagged the decrease in the government's tobacco excise tax collection and the increase in smoking due to the illicit tobacco trade, calling it a "lose-lose" situation for the country.

He made the conclusion as he led the Senate ways and means committee's inquiry on smuggling and the illicit trade in excisable products.

"We're now in a lose-lose situation because smoking prevalence is going up, tax collection is going down. So we have to analyze very carefully what happened and that is why I am calling on the DOF, the DOH, the DTI, and the other enforcement agencies to look at this very closely and to analyze," Gatchalian, chairman of the ways and means panel, said.

It was disclosed during the hearing that the excise tax collection started decreasing in 2022.

In his presentation, Bureau of Internal Revenue Excise Large Taxpayers Service Office's Dondanon Galera revealed that excise tax collection has been on the upward trend, from P31 billion in 2010 to P176.48 billion in 2021.

However, it declined to P160.4 billion in 2022, P134.91 in 2023, and the tentative collection as of December 2023 is at P134 billion.

According to Galera, among the reasons for the decline in excise tax collection are "the change in consumption pattern of those smokers from using traditional tobacco or cigarette to vape" and the "illicit trade" particularly in cigarettes.

Gatchalian also presented a graph showing the estimated excise tax leakages due to illicit trade of cigarette products and misdeclaration of vapor products from 2019 to 2028 based on BIR's data.

In the graph, the excise tax leakage is expected to balloon from P13.9 billion in 2019 to 65.9 billion in 2028 due to the illicit trade.

The Bureau of Customs told the Senate panel that they were able to seize P5.774 billion worth of vape and tobacco products in 2020, P171.5 billion in 2021, P1.129 billion in 2022, P3.823 billion in 2023, and P9.194 billion in 2024.

Gatchalian noted that the amount was tripled from 2023 to 2024.

"The DOF should already press the alarm button and already take a look at this phenomenon that is happening in our country, in our shores. Just for the last two years, the number of raids and seizures by both enforcement agencies have been going up. The quantity and the value also is going up. If we don’t focus our attention on this, we'll end up with a scenario wherein the illicit trade might be bigger than the legal activities,” he said.

With the BIR and the BOC confirming the proliferation of the illicit tobacco trade by citing the raids they have conducted in the past few years, Gatchalian inquired about its effect on public health, also noting that percentages of excise tax go to health programs and services.

According to the Department of Health, the Food and Nutrition Research Institute latest study showed that the percentage of current smoking adults 20 to 59 years old by age group increased from 19 percent in 2012 to 24.4 percent in 2023.

The DOH, however, cannot confirm that the uptick in the smoking prevalence could be attributed due to illicit tobacco trade.

"If we are seeing that the legal cigarettes being sold is going down...and the excise tax being paid by legal cigarette manufacturers and companies are also going down, then why is the smoking prevalence going up?" Gatchalian asked.

"Where is the smoking coming from?" he went on.

DOH Undersecretary Kenneth Ronquillo attributed this to the use of vape products.

However, Gatchalian urged them to study it closely as he explained that the purpose of vape is to transition the cigarette smokers to use vapor products and not to increase the number of smokers which the FNRI data showed.

"The three percent jump is quite big. If you're talking about 50 million adults, we're talking about close to about maybe 2 million to 2.5 million increase. So you have 2 to 3 million new smokers whether it's vape or smoking illicit products," he said.

Ronquillo committed to study it, which was welcomed by the senator, saying "we're in a phase wherein we're not achieving our health objectives."

"The reason why we impose excise tax on vape products, on tobacco products so we can have better health outcomes. But the better health outcomes have reversed from 19%, now it's back to 24% and the original was 29%," the senator noted.

At the end of the hearing, Gatchalian urged for stronger enforcent against illegal tobacco trade to reverse the current trend.

"In my opinion, enforcement is not enough. We need to look at the other ways or the other causes of illicit trade...Aside from the enforcement, we should really think of other ways, maybe economic ways in curbing illicit trade because illicit trade is not doing the country is not doing good," Gatchalian said.

"We want to reverse this trend and hopefully increase again tax collection, at least stabilize tax collection because it's going down... but definitely, right now, we are seeing a reversal of the gains that we've seen in the last few years," he added. — BM, GMA Integrated News