Excise tax increase triggers widespread cigarette smuggling

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THE BUREAU of Internal Revenue (BIR) said smuggled cigarettes are currently flooding the market, in response to the rise in excise taxes this year.

“Frankly we have a proliferation of smuggling. Our attention was called by big tobacco companies, Philip Morris, Japan Tobacco, who conducted their own investigation,” BIR Commissioner Caesar R. Dulay told reporters yesterday as he inspected the income tax return filing center in the Quezon City Revenue Region.

“We’re working on that that’s why we have a task force created to address that,” he added.

He said that initial information from the BIR and the Bureau of Customs (BoC) points to rampant smuggling from other Asian countries, with smuggled products sold outside Metro Manila, including Davao, Nueva Ecija, and Bulacan.

Mr. Dulay said that the said cigarette products amounted to “substantial” foregone revenue. “The tobacco companies are complaining about the smuggling,” he added.

The BoC intercepted on April 10 misdeclared cigarettes from China worth P18.5 million at the Manila International Container Port. Last month, it also seized P8.2 million worth of cigarettes

The Department of Finance has reported that tobacco excise revenue grew 74.3% to P24.04 billion in the first two months of the year — representing about 15% of overall BIR collections for the period. The collections exceeded its P14.93-billion target by 61%.

On Jan. 1, Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) imposed a P32.5 excise tax per pack on cigarettes, up from P30 in 2017. By July, the tax will rise further to P35. Aside from tobacco, the law also provides for more levies on automobiles, minerals, fuel, and imposed new excise levies for sugar-sweetened beverages and cosmetic procedures.

Mr. Dulay said that tobacco products will continue to drive its revenue take this year, following Japan Tobacco International’s (JTI) acquisition of Mighty Corp. last year.

“For the past five years, Mighty’s compliance was very low… Since JTI came in and bought out Mighty, compliance has improved, and cigarette tax stamp collections have risen,” he said.

Yesterday was also the deadline for filing the 2017 income tax returns. Deputy Commissioner Marissa O. Cabreros said that “almost 100%” of taxpayers filed their returns through the BIR’s electronic portal.

The Quezon City Revenue Region accommodated fewer manual-filing taxpayers, as Ms. Cabreros noted improvements to the BIR’s electronic systems for the tax filing season.

“In fact we are not expecting too many people; it’s just that we want to be open and available to taxpayers who want to have assistance. In the past yes there were problems on the traffic in our systems. We anticipated those.”

“We improved our protocols for e-filing — in fact its open 24/7 even on weekends. We were thinking of the taxpayers who want the comfort of having a BIR official assist them. The filing centers are open to help them out and there are computers there, and they can be helped with filing their returns electronically,” she added.

The BIR collected P422.59 billion in the first quarter, up 14.03% from a year earlier, and exceeded its P361.77 billion target by 16.81%.

In April, the bureau expects to collect P274.49 billion, about 13.46% of the full-year collection target. Of this amount, P193.91 billion or 70.64% will be income tax.