The tobacco war

by Iris Gonzales, The Philippine Star, Feb 4, 2019

I can’t count how many cigarettes I’ve smoked in my life, but every stick marked something big or bizarre – a heartbreaking story, a bloodied body I saw, a breathtaking mountain that made me gasp, or a quarrel with a lover.

But my mother would be happy to know – in case she is reading this – that I don’t smoke anymore, thanks to a bet I made with a taipan while smoking in Cape Town and some nicotine-induced skin allergy.

In this day and age, smokers have a choice to quit or not to quit. This was not the case during the tailend of the Ming Dynasty when Chongzhen, the last Ming emperor, banned tobacco and ordered smokers’ heads chopped off.

If I lived during that era, I would have been one of the rotting headless corpses.

The emperor’s hardline stance against tobacco has long been forgotten, but opposing tobacco forces – The Big Tobacco versus the Big Anti-Tobacco – are still very much at war.

It’s exactly what’s happening in the Philippines now and the anti-tobacco lobby is stronger than ever.

This should be a good thing, right? How can anti-tobacco initiatives ever be wrong?

Unfortunately, in a developing country like the Philippines, it may not necessarily be the best solution under the present circumstances.

This is especially true if anti-tobacco organizations (ATOs) have become like a huge well-oiled syndicate with foreign funding.

It can be dangerous because it could mean that the ATOs would stop at nothing just to push their agenda, never mind if this would indirectly result in smuggling and eventually hurt state coffers.

Before I continue, please note that because I no longer smoke, it doesn’t really matter to me if cigarettes become very expensive because of taxes.

But it should matter to the government because there are other things at stake.

Let’s look at the bigger picture.

Smuggling

As someone who covered the Bureau of Customs for years, I am well aware that there is a potential backlash that could happen if taxes on tobacco are raised drastically.

Smuggling of cigarettes will worsen because logic dictates that if prices of legitimate products go up, their smuggled counterparts will flood the market.

At present, around 15 percent of cigarettes in the market is smuggled. It even reached 30 percent under the previous administration which turned a blind eye against the illicit trade.

Smuggling is a lucrative business. With just P40- to P50-million, one can set up a makeshift cigarette factory and earn P800 million a year.

For sure, smoking will increase because smuggled cigarettes are way cheaper – one third of the price of the legitimate products.

The health advocates can say the solution is to just address smuggling, but as we all know that’s not easy to do in our country.

So let’s not be carried away by all these anti-tobacco rah-rahs because it’s not necessarily the road to utopia – not in a developing country like the Philippines where anti-smuggling efforts remain wanting.

The tobacco tax rate at present is P35 per pack and health advocates want to increase this to anywhere from P60 to P90 per pack, saying that demand would not be significantly affected.

But demand for tobacco products is not inelastic. From 100 billion sticks a year in 2012, the market is now at around 70 billion sticks.

Clearly, the industry is already on a steady decline. In the past six years, eight million Filipinos have quit smoking, according to industry data.

This is good news, but if the government is counting on sin tax revenues to fund the Universal Health Care program, then it should strike a balance between the opposing forces.

Sweet spot

Taxing the tobacco industry – or any industry – is no doubt necessary. Big Tobacco has been raking in profits for decades at the expense of our lungs and it is just right that it pays the right taxes or even bigger.

But let’s not do it in a way that will worsen smuggling, which in the process will only increase smoking. Wouldn’t that be ironic?

Besides, smuggling is tantamount to economic sabotage. I’ve written so many stories against smuggling – not just of cigarettes but of various products and I know just how much it can hurt the economy.

With aggressive tax increases, local products will become very expensive. When that happens, the incidence of contraband and counterfeits will increase as what has happened in Malaysia, Australia, and Canada.

In Malaysia, for instance, out of 16 billion sticks consumed in 2017, only seven billion were legitimate, while nine billion came from the illicit market.

Senator Sonny Angara said over dinner recently that the key is to find the sweet spot wherein the government would continue to earn, the industry will not shrink drastically, smuggling will not worsen and smoking isn’t cheap.

Perhaps, gradual increases in taxes – even higher than inflation – may be better than shotgun moves.

Finding that sweet spot will, indeed, be key. After all, this is the 21st century. We can’t have Chongzhens out there still chopping smokers’ heads just because they want to smoke.