Cigarette, oil smuggling rampant again

In a windowless basement of a decrepit building in Guiguinto, Bulacan, 73 workers from Mindanao take turns packing illicit cigarettes. The makeshift factory, owned by a Chinese businessman, has every bit the look of a fly-by-night operation – a hodgepodge of wires protruding from a concrete wall with smudges of white paint; an old cigarette making machine, wooden tables filled with empty boxes of cigarettes and heaps of dried brown tobacco leaves strewn grotesquely on the dirty floor.

This makeshift cigarette factory operated 24 hours a day, seven days a week until authorities raided it last March.

In another place in the province of Nueva Ecija, authorities found cigarettes produced by the Shanghai Tobacco Group to be selling for P28 per pack, way below the P32.50 tax per pack.

Chinese traders

Indeed, industry players can’t help but notice the alarming rise in the smuggling of cigarettes, especially by Filipino-Chinese traders. The schemes vary. Some are smuggled from China and repacked in the Philippines, while some like in the case of the factory in Guiguinto, are produced in the Philippines.

Just last month, the Bureau of Customs (BOC) intercepted P18.5 million worth of smuggled cigarettes at the Manila International Container Port.

Commissioner Isidro Lapeña said the shipment consigned to Marid Industrial Marketing was declared as industrial artificial fur texture.

However, the shipment turned out to be 914 cartons of cigarettes under the Jackpot, Fortune, John, Marvels and U2 brands.

The branded cigarettes arrived from China on April 4, Lapeña said.

The Bureau of Internal Revenue (BIR), for its part, raided five makeshift warehouses owned by Filipino-Chinese traders in Malabon City and Tondo in Manila last month in what was, so far, its biggest haul of smuggled and counterfeit cigarettes.

The BIR was able to confiscate at least 43 mastercases of Winston brand; 91 mastercases of Mighty cigarettes; 82 mastercases of Marvels brand; 11 mastercases of Chunghua cigarettes; 71 mastercases of Two Moon brand; 37 mastercases of Fortune brand; and eight mastercases of Marlboro brand.

Assorted cigarettes, including Japan Tobacco brands bearing fake tax stamps, were also confiscated in a separate raid in Tondo.

Japan Tobacco Inc. (JTI) Philippines president and general manager Manos Koukourakis must be scratching his head in frustration.

After buying Mighty Corp., JTI is now the second biggest cigarette player in the country next to PMFTC, the merged entity between Philip Morris and Lucio Tan’s Fortune Tobacco.

Prior to the acquisition, JTI accounted for only a measly 4.2 percent share. Now, its business has grown big with Mighty in its portfolio, but so did the problems.

But over dinner recently, Manos said the continuing raids and enforcement action of the BIR on secret warehouses and factories show government’s sincere efforts to weed out syndicates involved in illicit cigarette trade.

Still, the problem remains very huge and very real, he said.

Higher taxes

Smugglers are raking in more money when taxes are high and cigarette prices are higher.

The Tax Reform for Acceleration and Inclusion (TRAIN), the Duterte administration’s tax program, mandated a graduated increase in cigarette taxes from the current P30 per pack to P32.50 per pack in the first half of 2018 and to P35 per pack starting in July 2018 to December 2019.

“The fact that for every pack, there is a P35 excise tax makes it lucrative to the illicit operators,” Manos said.

Clearly, he said, smuggled cigarettes translate to revenue losses for the government, adversely impact local farmers and labor, harm adult smokers due to their extremely poor quality, and negatively affect the legitimate tobacco industry which pay their taxes.

But the government stands to lose the most. The government, on an average retail price of P58 per pack, collects almost 70 percent of gross industry revenues.

Unfortunately, steep tax increases make people shift to smuggled cigarettes because disposable income does not follow in the same way.

Unfortunately, there will be more tax hikes for cigarettes under TRAIN.

Unless the government really eliminates smuggling, higher taxes won’t really be a deterrent to cigarette consumption, nor would it translate to a full increase in tax collections for the government. It would only mean that cigarette consumers would buy the smuggled and cheaper alternatives.

Consumers won’t know for sure how the smuggled cigarettes are produced – whether in a rat-infested warehouse somewhere in the dirty streets of Metro Manila or in a makeshift factory in China.

Oil smuggling

Cigarette smugglers aren’t the only ones enjoying a heyday. A businessman in the oil industry business said higher prices of gasoline in the country have also made oil smuggling rampant again.

Since the start of the year, oil companies have already hiked prices by as much as P8 per liter as a result of the TRAIN and the increase in global crude prices.

In a recent chat with an oil tycoon, I said I now spend P2,500 for my car’s full tank gasoline requirements from just P1,900 prior to the TRAIN.

“That’s not the only problem. The bigger problem is oil smuggling. The smugglers are back,” my source said. Indeed, smugglers are at it again.

Iris Gonzales’ e-mail address is eyesgonzales@gmail.com.