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Illicit cigarette sales cost govt P22.5b in revenues

HONG KONG—One in every five cigarettes is illegally consumed in 2014 and the illicit trade has cost the Philippine government around P22.5 billion in foregone revenues, the United Kingdom-based think tank Oxford Economics said here Tuesday.

Oxford Economics, which conducted the study commissioned by Philip Morris Fortune Tobacco Corp., said the consumption of illicit cigarettes in the Philippines increased 4.1 percentage points to 19.4 percent, equivalent to 19.9 billion cigarettes.

Domestic illicit trade, according to Oxford, pertained to cigarettes manufactured by the trademark holder, but are illegally sold and consumed in the same market, without the payment of excise taxes and value-added tax.

Of the total 102.3 billion total cigarettes consumed in 2014 (legal and illicit), 19.9 billion sticks were illicit.

The study, the third in its series, showed total consumption of cigarettes declined 3 percent in 2014, the lowest level since the first Asia Illicit Tobacco Indicator report was issued in 2012.

Legal domestic consumption is estimated at 82.3 billion cigarettes or 80.4 percent of total consumption, while 0.1 percent is non-domestic legal.

The UK-based think tank, however, said it was hoping for a marked improvement in 2015 with the full year implementation of the tax stamp system of the Bureau of Internal Revenue.

“In line with the amendment of the National Internal Revenue Code of 1997, it is anticipated that the affixture of tax stamps introduced on 1st December 2014 will ‘further improve tax administration’ and ‘deter misdeclaration of removals”, the report said.

It said it was confident the volume of domestic illicit consumption would decline in the future years following the Philippine’s government’s action to address the problem with the imposition of the new tax stamp program last December.

“As the evidenced by this report, significant price increases over the last few years have led to the erosion, of the legal market for cigarette, with the illicit trade filling the gap,” it said,

The Internal Revenue Stamps Integrated System was launched on August 1, 2014 and implemented in March and April 2015 for domestic and for export cigarettes, respectively.

Former budget secretary Benjamin Diokno, an adviser to the International Tax and Investment Center which reviewed the report, said the rise in the incidence of domestic illicit consumption for two consecutive years had built a compelling case for the imposition and strict enforcement of the BIR’s new IRSIS.

Diokno said IRSIS if consistently enforced and monitored should be an effective tool to bring down the incidence of domestic illicit consumption, and protect government revenues by plugging loopholes as well.

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