Unreliability of the study

by Cecilio Arillo – 

column-Cecilio T. Arillo-DATABASEIF there’s anything to learn from the latest Oxford Economics (OE) study on illicit tobacco trade released recently in Hong Kong to a selective group of mediamen, it is its unreliability as a reference for taxation as it drew a sharp retort from no less than Internal Revenue Commissioner Kim S. Jacinto-Henares.

Henares branded as biased and inaccurate the study that the government lost last year more than P22 billion in revenues due to rampant consumption of untaxed cigarettes.

She cited a World Bank study which showed that only 5 percent, not 19 percent as claimed by OE, of the total cigarette consumption yearly was sourced from the illicit cigarette trade.

Henares said the study made by OE is biased, because it was commissioned by a big cigarette producer who strongly opposed the passage of the “sin” tax law.

Although the revenue chief did not elaborate to avoid being dragged into a trade war between the multinational company and its small competitor, Mighty Corp., which the former has been repeatedly suspecting of engaging in trade malpractices to increase its market share and profits.

What prompted Henares to react quickly was that this is not the first time that OE came out with such an unreliable study, especially at a time when revenue collections from the sin-tax law tremendously increased over the past few months and in the previous years, and, thus, debunked advocates of illicit trade.

There were three other highly questionable studies and reports on illicit trade that were also discredited not only by Henares but by the World Bank, World Health Organization (WHO) and the South East Asia Tobacco Control Alliance, equally reliable authorities on tobacco taxation and illicit trade.

One, is the AC Nielsen Report, which “estimates” illicit cigarettes using a questionable survey method. To date, nobody, except the multinational company, has seen an actual copy of the study. No government agency has been furnished with one, as well.

Two, is the Asia-11 Illicit Tobacco Indicator that you can throw away after reading the disclaimer that says:

“ITIC [International Tax and Investment Center] and OE prepared the report in accordance with specific terms of reference agreed between Philip Morris Asia Ltd., an affiliate of Philip Morris International Inc. [PMI] and ITIC. PMI has provided financial support for the report. However, ITIC and OE assume all responsibility for the report’s analysis, findings and conclusions.

“The report is to serve as a public policy resource pursuant to ITIC’s mission. Nevertheless, should any party choose to rely on the report, they do so at their own risk. ITIC and OE will not accept any responsibility or liability to any claim in respect of the report.”

Three, is the Senate Tax Study-Research Office report that was obviously twisted by the PR guys  of the multinational firm to its favor. The report itself offers the recommendations that the data therein is inconclusive and subject to further analysis whether there are taxes and duties leakages.

The Southeast Asia Tobacco Control Alliance also found out that:

  • The report failed to mention that, even according to its own results, the majority of countries (six out of 11) compared over time experienced a decline in the volume of illicit trade.
  • Nowhere in the report is it mentioned that for the majority of countries (four out of seven) where the share of illicit consumption in total consumption of cigarettes increased between 2012 and 2013, there was no tax increase in 2013. Such result might have undermined the notion that tax increases drive increases in illicit trade, a key message of the report.

Finally, the report is full of errors and mistakes, which is rather surprising given the “commercial” quality and glossy graphical presentation of the results. For example, the report does not make any distinction between smoking incidence and smoking prevalence, even though these are two very different concepts: prevalence is the proportion of a population that smokes, while incidence measures how many people per year begin to smoke.

It also confuses “sales” and “consumption,” two fundamental concepts on which the calculations are based. In short, as was true for the prior Asia-11 Report, the reliance on potentially biased data, combined with the lack of transparency about methods employed, results in a study whose estimates are of questionable value. We would caution any stakeholders against relying on this report when assessing the trade in illicit cigarettes in their country or in the region.

Mighty’s rival should be reminded that it is violating not only laws made by Congress (Republic Act [RA] 9211 and its interagency committee, implementing regulations and RA 7394 on unfair competition and deception), memoranda between government agencies and Article 5.3 of the WHO-Framework Convention on Tobacco Control (WHO-FCTC).

The country is a signatory to this government noninterference convention in 2004.

In essence, the WHO-FCTC recognizes that tobacco industry interference poses the single greatest threat to tobacco control. It has been documented that the big ones (multinational) in the tobacco industry have used self-serving strategies to subvert, hinder and prevent tobacco-control efforts at the start of the illicit trade campaign.

To reach the writer, e-mail cecilio.arillo@gmail.com.




The article was published in http://www.businessmirror.com.ph/unreliability-of-the-study/ on October 16, 2015.