BIR, BOC: Critics’ smuggling rebuttals over sin tax reforms dogged by biases

Press Release – Action for Economic Reforms— 6 June 2012

AS CONGRESSIONAL DEBATES on the Abaya sin tax reforms finally conclude, the Philippines’ top tax and customs officials once more addressed fears from tobacco-aligned solons that the enactment of HB 5727 would unleash runaway rates of cigarette smuggling.

Referencing respected reports and data sources, BIR chief Kim Henares and Customs Commissioner Ruffy Biazon disputed accusations by critics that they had employed ‘inaccurate’ evidence to allay smuggling jitters over the Malacañang-sponsored sin tax bill.

Previously, Congressman Rufus Rodriguez had alleged that smuggling upsurges in the Sweden, UK and Singapore over the last decade had vindicated anti-reform sentiments towards the Abaya sin tax bill. Lashing at World Bank figures brandished by the public officials, the lawmaker bemoaned that later growths in trafficking had flouted the measure’s original objectives, goading these same governments to temper, or even roll back, their nations’ cigarettes levies.

“Unfortunately, most of these claims still rest on flawed logic,” said Henares. “Apart from the fact that average cigarette prices in the Philippines will still be lower than most of our neighbors after passage of this bill, making large-scale smuggling unprofitable, I’m afraid that there has been a confirmation bias in how these cases have been interpreted. Even if such smuggling increases did take place, the portrayals have highlighted the wrong variables.”

Various studies by the World Bank such as Tobacco Control in Developing Countries (2000), Curbing the Epidemic (1999) and its Economics of Tobacco Control Series (2002-2009), said the officials, have firmly attested to the fact that governance quality is far more crucial than price in shaping the volume of cigarette trafficking. These acclaimed reports have argued that illegal trade in cigarettes can and must be offset by governance and enforcement initiatives— not by reneging on tax increases on tobacco.

Numerous country experiences have validated this contention. While smuggling did reach unprecedented levels in the UK by 2001— because of the collusion of trafficking syndicates with multinational firms like Imperial Tobacco—, the execution of a comprehensive anti-smuggling plan by the UK government deflated the country’s illicit cigarette market by half in only 8 years.

According to the UK’s Revenues and Customs bureau, its tobacco black market was reduced from 21% of domestic sales in 2001 to 11% by 2009, even as excise taxes were adjusted yearly for inflation.

On the other hand, the so-called smuggling wave in Singapore from 2000 to 2005 failed to undermine the health aims of its tobacco taxes, as opponents of the Abaya bill have maintained they would. Due to annual rises in tobacco prices, the city-state’s smoking prevalence fell from 18.3% in 1992 to 12.6% in 2004. When further tax increases were nixed from 2005 onwards, smoking prevalence crept back up to 13.6% by 2007. The culprit: the mounting affordability of cigarettes.

“The way how critics of HB 5727 have doled out smuggling warnings has been distracting the public from the core issue,” asserted Biazon. “As we have said before, the main factor leading to cigarette smuggling is poor governance and a lack of political will. This something that both the BOC and the BIR can address, and that we’ve already begun addressing.”

Biazon listed several reforms that have been initiated by the BOC to curb illicit tobacco trading. In the short-term, he said, the bureau has been automating and streamlining its procedures to foil the typical graft and abuses that have tarnished the agency’s image. Digital tracking and online X-ray systems are being implemented to improve results monitoring and database management.

Looking beyond, the BOC’s plans include sustaining its prominent “Run After The Smugglers” program, as well as establishing a National Single Window for cleaning up public agencies involved in the issuance of import/export clearances. International partnerships for watching shipments around the ASEAN and Pacific region will also be cultivated.

“Rest assured that the Bureau of Customs is prepared to ensure that cigarette smuggling will not dilute the revenues, but more importantly, the health objectives that amended HB 5727 promises to fulfill,” said Biazon. “The importance of this bill cannot be overstated: because our cigarettes are the cheapest in Southeast Asia, over 300,000 Filipinos could now be dying yearly from smoking-related diseases every year. We salute all of our congressmen who want to approve this bill.”

“HB 5727, even with its amendments, is the very first chance in over 15 years to clean up a flawed tax system which has brought absolutely no benefits to the Filipinos— except easy access to a toxic, dangerous product,” Henares contended. “This is bill has been long overdue. Let’s not allow a few misplaced smuggling concerns to prevent us from finally legislating it.”

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