High sin taxes may promote terrorism

Greed often makes the greedy ones blind to the repercussions of greed. We cannot find a better example of such greed and blindness as the proposed bill of Cavite Rep. Joseph Emilio Abaya, which would increase excise taxes on cigarettes and liquor by more than 1,000 percent. Supporters of the bill are easily blinded by the billions of pesos in additional revenue that higher sin taxes will bring to the government. They think that smuggling is a victimless crime, basically a law enforcement problem that simply deprives government of potential incomes.

What they don’t see is that it is more than lost revenue that is at risk should sin taxes be increased. From the lessons learned by countries that have drastically increased their sin taxes, this measure has increased the incidence of violent crimes and even terrorism in those countries and other parts of the world. For the huge profits from cigarette smuggling finance the activities of terrorist organizations. It has been shown that cigarette smuggling feeds an underground economy that supports many of the most violent actors on the world stage.

If it becomes a law, Abaya’s sin tax reform bill will trigger smuggling, which could invite into our shores the violence and terrorism that so far we only read about in foreign news. A 1,000-percent increase in sin taxes is the shocker that may usher in renewed terrorism in the Philippines.

In its website, Health Justice Philippines, a Bloomberg awardee for tobacco control activities, provides a public health update that gives a peek into what we mean. Citing as source the 39-page “US report: Terrorists turn to cigar smuggling for funds” of the International Tax and Investment Center (ITIC), it says that “illicit trade (on tobacco products) has become a major security challenge in different environments around the world and is increasingly used to fund terrorism.

“Terrorist organizations and other organized crime groups are exploiting the illicit trade in tobacco products because the highly lucrative activity is relatively low-risk compared to other heavily penalized crimes like drug trafficking and human smuggling,” the ITIC report said.

In North Africa, unmarked desert paths that nomadic Tuareg tribesmen have treaded for centuries on camelback to trade for cloth, salt, and dates are today the highways of techno-savvy cigarette smugglers. With the guidance of the same tribesmen, they drive SUVs along roads using satellite phones to move weapons, drugs and, increasingly, humans through the Sahara to the Mediterranean Sea.

The Center for Public Integrity (CPI) reveals that among those who control this underground trade is the al-Qaida in the Islamic Maghreb (AQIM), an Algeria-based terrorist organization believed to have been supported by Osama bin Laden. With hundreds of members, the group is blamed for a bloody campaign of bombings, murders and kidnappings across North Africa and Europe.

The group’s lead cigarette smuggler is Mokhtar Belmokhtar, 40, who is blamed for the 2003 kidnapping of 32 European tourists and the 2006 murder of 13 Algerian customs officials.

“Of all Islamic terrorist groups, they (AQIM) have the most extensive and sophisticated network in Europe. And among their activities, smuggling is particularly important,” says Lorenzo Vidino, author of “Al Qaeda in Europe.” Military officials and scholars in Algeria say cigarette smuggling has provided the bulk of AQIM’s finances.

But al-Qaida’s affiliate in North Africa is not alone. After the crackdowns on fundraising that followed the 9/11 attacks, international terrorist groups increasingly turned to cigarette smuggling, which has proven to be a lucrative, low-risk way of generating funds for terrorist operations. Compared to narcotics and human trafficking, the penalties for illegal tobacco trade are lighter. And sniffer dogs are not trained to detect tobacco.

CPI reveals that the Hezbollah, Taliban and al-Qaida are also involved in cigarette smuggling, facilitating illicit global distribution and using the profits to finance terrorist activities.

And so are the Real Irish Republican Army (Real IRA), which persists in using terror, robbery, bombings and assassinations, long after the Provisional IRA has chosen parliamentary means to unite Ireland.

Real IRA is responsible for nearly all the smuggled tobacco seized in Northern Ireland, flooding the entire island with untaxed and counterfeit versions of popular cigarette brands. Authorities say cigarette smuggling has emerged as the top funding source for the Real IRA.

At the core of the problem are the high profits of tobacco smuggling, which rival those of narcotics, plus the relative cheapness of conducting a terrorist operation.

A shipping container with half-a-million packs of counterfeit cigarettes costs as little as P4.3 million to produce in China, but can sell as much as P85.6 million tax-free in the United States (assuming they sell P171.20 per pack). Not as high, but local smoking prevalence is definitely higher, freight costs are lower, and  manpower is cheaper. In addition the coastlines are porous, and authorities are more easily fooled.

Compare that with the measly amount needed to wage a terrorist attack.

Were they to focus on the Philippines it will be infinitely cheaper for terrorists to fund expansions into urban areas. Still want to tease cigarette smugglers into our shores with high sin taxes?

ITIC says that smuggled cigarettes are available throughout the world, in high-income or low-income countries alike. The common environment is a sin tax policy that results in high retail prices relative to consumer income. And a low focus by law enforcers on the illicit tobacco trade due to lack of resources.