Illicit

FIRST PERSON

- ALEX MAGNO

We live in an archipelago with thousands of kilometers of undefended beaches. Therefore, smuggling is easy to do—especially when revenue policies and enforcement capacity are mismatched.

I am old enough to remember the time when smuggled cigarettes were called "blue seal." That was because they did not bear the required BIR stamp—even as they were openly sold in the stores.

Smuggling "blue seal" cigarettes must have been very lucrative, and the risks of conviction must have been very low. The trade produced powerful political lords in provinces around Manila. Everybody knew what they did for a living, although no one ended up in jail.

Eventually, domestic manufacturers wisened up. First, they faked BIR stamps. That was too easy. They then began producing counterfeit "blue seals" and attached them to illicitly manufactured cigarette brands. That must have been doubly lucrative: fake cigarettes with fake stamps.

The fake brands with fake (foreign) stamps were "smuggled" back into our economy. This must have turned the smuggling industry on its head.

Government collections suffered. Consumers were left unprotected.

Over the past few years, government has repeatedly raised excise taxes on tobacco products. These revenue measures (called Sin Taxes) were relatively easy to enact. Few would argue with the public health benefits promised by such measures.

However, steeper excise tax rates are always an inducement to smuggle tobacco products—especially in an environment where there are large gaps in enforcement and only meager penalties for those apprehended.

Today, the steeper tax rates and weak enforcement infrastructure made smuggling even more lucrative.