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Lawmakers push for suspension of tobacco tax hikes to curb illicit trade

January 14, 2025 People's Journal 128 views

A GROUP of House leaders, including President Ferdinand “Bongbong” Marcos Jr.’s cousin, has filed a bill proposing the temporary suspension of annual excise tax increases on tobacco products. This move comes in response to the growing illicit cigarette trade and a decline in government revenue collections.

The multipartisan group, which includes two House Deputy Speakers, argued that the rise in illegal tobacco trade is undermining the Sin Tax Law’s dual objectives of increasing government revenue and protecting public health.

House Bill (HB) 11279 proposes a one-year suspension of the automatic 5% annual excise tax hike on cigarettes, heated tobacco products, vapor products, and cigars.

“Due to the prevalence of illicit tobacco products, the government’s excise tax collection has been declining since 2022. From a peak collection of ₱176 billion in 2021, tobacco excise revenues declined to ₱160 billion in 2022. In 2023, the Bureau of Internal Revenue (BIR) reported that the government has lost around 15.9% or ₱25.5 billion in revenue due to illicit trade in cigarettes, ending collections in 2023 with ₱135 billion,” the bill stated.

“This lost revenue amounting to billions of pesos adversely affected the government’s funding for health programs,” the authors added.

The bill’s sponsors include Deputy Speaker and Isabela 1st District Rep. Antonio “Tonypet” Albano, Deputy Speaker and Ilocos Sur 2nd District Rep. Kristine Singson-Meehan, Ilocos Norte 2nd District Rep. Angelo Marcos Barba, Kabayan Party-list Rep. Ron Salo, Ifugao Lone District Rep. Solomon Chungalao, and PBA Party-list Rep. Margarita Nograles-Almario.

In their explanatory note, the lawmakers explained that high excise taxes on tobacco products may have unintentionally fueled the illegal tobacco trade.

“While it is in the country’s legitimate interest to impose higher taxes on sin products, the increase in the amount of excise taxes imposed on registered cigarette products unintentionally resulted in the proliferation of illicit and counterfeit products due to their low-entry point and affordability,” they said.

The bill highlights that illicit trade now accounts for 13.2% of the total tobacco market, a significant rise from 5.3% in 2020. In 2023, the number of illicit cigarette users increased to an average of 13.9%.

“It is imperative for the government to recalibrate its existing revenue measures and ensure that our tax laws do not unduly incentivize nor give premium to the illicit traders at the expense of legitimate business,” the lawmakers stressed.

The authors also emphasized the link between illicit tobacco trade and national security threats.

“Illicit trade of tobacco products, which may now include vapor products, has been linked to the financing of terrorist organizations,” the bill warned.

The suspension is expected to bridge the price gap between legitimate and illicit products, discouraging the consumption of illegal goods and curbing the growth of illicit trade.

The proposed measure aims to protect legitimate businesses, ensure fair competition, and stabilize government revenue collections.

“Destroying legitimate businesses through excessive taxation, while illicit traders continue to dominate the market, is unacceptable. Such actions are counterproductive and undermine the nation’s goal of fostering a stronger economy, which ultimately benefits the greater public,” the lawmakers stated.

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