Philippines: Group Says 'Sin' Tax to Lower Tobacco Production by 50%

Source from:  Business Mirror (ph) 07/03/2012

THE Associated Anglo American Tobacco Corp. (AAATC) said the market volume of tobacco would fall by as much as 50 percent while there will be a thriving cigarette black market if the controversial Malacañang-backed "sin-tax" reform bill is signed into law. Blake Dy, AAATC vice president, said the Aquino administration should be wary of the potential of the black market ruling over the tobacco industry should House Bill 5727 become a law. "Why do we keep on thinking that this bill will be good for the farmers? Why aren't we thinking about the worst effects of this tax hike?" asked Dy even as he slammed at skeptics who downplay the possible impact of the tax hike on cigarettes. According to Dy, the high tax to be charged on cigarettes, as embodied in the proposed law, will give consumers no option but to shift to the cheaper smuggled cigarettes. "The worst case would be that the legitimate cigarette market will go down by 50 percent while the best scenario on market reduction is 26 percent. Further, smuggling and counterfeits will take the place of the legal cigarettes," said Dy, whose company manufactures the low-priced brands. He said his company would close shop with such an exorbitant tax hike, which has never happened anywhere in the world. Proponents of the tobacco-tax hike claim that the objective is to curb the increasing number of smokers in the country. But Dy countered that imposing a very high tax does not mean that consumption would also decline. He said consumers would only look for cheaper products. "Manufacturers of fake cigarettes are just waiting for this excessive-tax hike to be able to have their machines get going again. Aside from its illegality, nobody would know what that fake, smuggled or counterfeit stick contains. Are we sure about the contents of these products? Is that what you call being health conscious?" Dy asked. A total of 100 billion cigarette sticks are produced by the tobacco industry annually. With a flourishing cigarette black market fueled by an unprecedented tobacco-tax hike of 708 percent, counterfeits will emerge and farmers are directly affected, he said. Dy said under a 50-percent worst-case scenario brought about by smuggling and counterfeits, 50 billion sticks of legal cigarettes will be edged out of the market and would affect 42,000 farmers who produce 40 million kilos of tobacco leaf, the required kilos of leaf to manufacture 50 billion sticks. At a best-case scenario of a 26-percent market drop, volume produced would be less 26 billion legal sticks and would affect 22,000 farmers. Enditem