In July, the new House Ways and Means Committee chair of the 20th Congress, Representative Miro Quimbo of the second district of Marikina, filed House Bill (HB) 1316, a bill “strengthening the administration of excise taxes on tobacco and vape products.”
HB 1316 is almost identical to the Anti-Illicit Tobacco Trade Bill of the 19th Congress, supported by health advocates and co-authored by Rep. Miro’s wife, then-Rep. Stella Quimbo, former Ways and Means Chair Rep. Joey Salceda, and Anakalusugan Party-list Rep. Ray Florence Reyes, numbered HB 11286 and passed on third reading earlier this year.
HB 11286 strengthens enforcement to mitigate illicit tobacco trade by establishing a comprehensive track and trace system, raising penalties on illicit tobacco trade, requiring registration of equipment and manufacturing-related items for tobacco and vape products, and creating an inter-agency body for strengthened enforcement. The bill was supported by health advocates, recognizing that illicit cigarettes and vape products are priced dangerously low and therefore much more accessible to the youth. More importantly, health advocates recognized that rather than simply increasing the penalties for illicit trade, HB 11286 increases the likelihood of apprehension by strengthening enforcement.
However, advocates are concerned over Section 7 of Rep. Miro Quimbo’s new bill, which was not present in HB 11286: a proposal to insert a section in the National Internal Revenue Code (NIRC) to allow tobacco/vape/HTP manufacturers, importers or sellers to claim losses directly attributable to illicit trade as deductible expenses under Section 34(D) of the NIRC.
This is an incredibly misguided proposal that will erode government revenues and will only benefit the tobacco industry.
Section 34(D) of the Tax Code provides the allowable conditions under which businesses can claim losses, including losses arising from fires or other casualties or robbery. It also requires that businesses present proof of these losses. Allowing tobacco companies to prove that losses are directly attributable to illicit trade is extremely difficult to carry out, as there is no objective method to determine a company’s losses due to illicit trade. The gap in prices between illicit tobacco and licit tobacco is so huge that one cannot prove that even consumers of a counterfeit or illicit brand would have otherwise bought a specific brand of more expensive, licit cigarettes.
Further, if we’re talking about fairness, granting tax deductions to the tobacco industry to compensate for losses from illicit trade means that all other industries, big and small, that suffer losses arising from illicit trade, should be given the same tax deductions as well. Implementing this provision would be extremely complicated and easy to game on behalf of businesses seeking tax breaks.
This proposal may also lead to the perverse incentive of the tobacco industry overestimating illicit trade to generate more profits. In fact, as shown in the past, registered tobacco companies themselves are also engaged in illicit trade. Global evidence and our own experience with the Mighty tax evasion case in 2017 show that the tobacco industry itself is often complicit in illicit trade. The industry cannot be trusted with their narrative on illicit trade, and we cannot give them the leeway to possibly manipulate the figures on illicit trade for their own benefit.
Rather than being given tax breaks, the tobacco industry should be made to shoulder the immense costs that smoking causes our economy. In 2023, there were a total of 89,000 tobacco-related deaths in the Philippines, according to the Philippine Statistics Authority. This translates to one Filipino dying of a tobacco-related illness every six minutes. According to Dr. Antonio Dans, the Philippines loses at least P380 billion per year due to smoking. Tobacco tax revenues have not even recouped half of the amount lost due to all those who get sick, are unable to work, and pass away due to tobacco-related diseases.
Lastly, the proposal to give tax breaks to the tobacco industry is most irresponsible in any situation. Smoking cigarettes, licit or illicit, is bad for health. And tax breaks, especially to an industry that manufactures harmful products, will mean significant revenue losses that will worsen an already serious fiscal problem.
The public should not be made to pay for this.
The Miro Quimbo bill that will allow tax deduction to the tobacco industry will not solve illicit tobacco trade. It will make the situation worse: abetting illicit tobacco trade and fattening the profits of the registered tobacco companies.
Pia Rodrigo is strategic communications officer at Action for Economic Reforms.
