Invitation to smuggle

The excise tax apparently favored by President Aquino and columnist Raul Pangalangan (“Guilt-free ‘sin tax’ on tobacco,” Inquirer, 8/19/11) for priority legislation is House Bill 3465, authored by Rep. Henedina Abad, the budget secretary’s wife. Abad’s bill masquerades as a boost to government revenues but really aims to achieve non-fiscal, anti-tobacco objectives.

Because the bill is misguided, it is destined to fail at both ends.

By collapsing tobacco tax classifications, the Abad bill may succeed in scuttling the business of budget cigarette brands that poorer smokers consume. But effectively raising the street price of cigarettes by 83 percent will open the floodgates to smuggling and illicit trade in cheap, untaxed tobacco products.

Singapore raised excise taxes on cigarettes by as much as 30 percent in 2003. Tax collections went negative in subsequent years due to the emaciated business of cigarette companies. Yet the latest National Health Survey of Singapore showed growth in the number of smokers, prompting an anti-tobacco activist group, Towards Tobacco-Free Singapore, to call the findings “alarming.”

In Malaysia, tax rates on cigarettes were raised by an average of 24 percent from 2004 to 2010, causing a drastic drop in the volume of legitimate cigarettes by more than 44 percent. But it hardly impacted the size of the smoking population because, in the same period, illicit cigarette trade exploded. Malaysia is now one of the biggest tobacco black markets in the world with 40 percent of Malaysian cigarettes being smuggled and untaxed. That’s the rough equivalent of over 9 billion sticks every year.

In both countries, onerous excise tax increases bred massive illicit trade in cheap, untaxed cigarettes in spite of enviable control and enforcement.

To control cigarette smoking, Abad’s HB 3465 will raise the cost of cigarettes way beyond what Malaysia and Singapore did. We are certain to lose revenues for nation-building, wreck economic gains and grow the smoking population.

Are we really ready to for it? Is the customs bureau ready—with its disappearing 2,000 seized luxury vehicles trick—to guard against massive, rampant cigarette smuggling that an onerous excise tax law will cause?

—MIGUEL C. LOPEZ, chair,

Caucus for Philippine Competitiveness