EconomyEditor's PickIllicit cigarettes take up 10% of market

November 1, 2021

The Bureau of Customs Port of Cagayan de Oro destroyed illicit cigarettes worth P30 million on Sept. 8. — COURTESY OF BUREAU OF CUSTOMS

THE DEPARTMENT of Finance (DoF) estimates that illicit cigarettes may account for up to 10% of the market amid an increase in smuggling and illegal manufacturing as excise taxes rose.

“As the tax on cigarettes increases, there is more incentive to smuggle. So we’ve seen increases not only in illicit cigarettes coming in but small factories being set up,” Finance Secretary Carlos G. Dominguez III said at a virtual press briefing.

“The manufacturer of cigarette-making machines has been able to miniaturize this. As I’ve mentioned before, you can be in business if you have a hundred square meters of warehouse.”

He said most illicit cigarette sellers are caught by the Bureau of Customs and Bureau of Internal Revenue, reducing the number of illicit cigarettes sold in the country.

“The last figure I saw was between 7% and 10% (of the cigarette market) are illicit. Prior to our cracking down on this illicit cigarette business, I understand it was around 35%,” he said, quoting industry figures.

Excise taxes on cigarettes and other tobacco products have been raised three times since 2016 as the government seeks funds for the Universal Health Care (UHC) program.

Excise tax collections on cigarettes rose 31% to P83 billion in the first seven months of 2021 as tax rates increase and sales figures rebound.

President Rodrigo R. Duterte in 2019 signed Republic Act No. 11346, which gradually raises cigarette excise tax to P60 per pack by 2023, and then by 5% every year thereafter.

The DoF is also keeping an eye on the shipment of smuggled cigarettes in the Port of Subic.

The relevant government bureaus have been conducting raids in Subic that have resulted in seized cigarette-making machines and products, Finance Assistant Secretary Dakila E. Napao said. — Jenina P. Ibanez

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