Benefits given to tobacco industry

According to Asian TII index, the tobacco industry’s business portfolio is still highly valued for its perceived contributions to economic growth. Consequently, this earns the industry privileges or incentives from governments to expand its business further. Except for Brunei, the tobacco industry continues to enjoy these benefits from governments across Asia.

Carving out tobacco industry exemptions

A serious consequence of the preferential treatment to the industry is political accommodation to influence policies. Pro-industry policies not only impact finance and trade but, more importantly, have adverse effects on public health. To illustrate, most governments have imposed lockdowns limiting movement in the economy to only essential goods and services to mitigate the spread of COVID-19.

Philippines also classified tobacco as non-essential and restricted its transport and delivery in areas under lockdown in March 2020. By April 2020, the finance department announced that lifting the transport restriction on tax-paid cigarettes is “under consideration because the absence encourages illicit trade.”[i] The government eventually lifted the restrictions and announced that the tobacco industry could fully operate in areas under general community quarantine.[ii]

Governments deferring or postponing tobacco control measures

Broadly, the tobacco industry benefits from weakened tobacco control measures and extended timelines to implement these measures.

In Indonesia, the government announced an average excise hike of 12.5% for tobacco products effective in 2021, but excluded hand-rolled kreteks.[iii] By April 2020, the government eased the payment scheme by extending the payment deadline from 60 to 90 days, and the time limit for withdrawing tobacco products with old excise stamps in the market, by 60 days.[iv] Eventually, the effective date of the tax increase was also moved from January to February 2021, which allowed the industry to sell at old market prices, deprived the government of additional revenues, and sustained rather than discouraged tobacco use.[v]

In Thailand, the effectivity date of the ineffective two-tier tax rate was also extended for another year.[vi]

In Cambodia, the adoption of the Joint Prakas to implement the penalties (fines) under the Tobacco Control Law has not progressed. At the same time, the rotation of the pictorial health warning set in August 2020 was also postponed by a year.[vii]

Tax breaks, incentives, and trade boosts

The tobacco industry also benefitted from tax breaks and exemptions in 2020.

As in previous years, Myanmar’s Union Tax Law of 2020 exempts cheroots, cigars, and raw tobacco from tax payments if annual production costs do not exceed MMK 20 million (USD 14,700),[viii] and Thailand still applies tax exemptions for native tobacco leaves (up to 1 kilogram) used for non-industrialized purposes.[ix]

The 25-year (2001-2026) Investment License Agreement (ILA) between the government and Imperial Tobacco, which created the LTL joint venture, provides excise tax ceilings for LTL products and is a crucial barrier for the government to increase tobacco taxes in Lao PDR.[x]

In the Philippines, the law amending the internal revenue code increased the excise tax on ESDs,[xi] but at rates that are still substantially lower than rates imposed on cigarettes, aligning with the tobacco industry’s agenda. Consequently, PMI started the sale of its IQOS HTP in Manila.[xii] The bilateral agreement between Cambodia and Vietnam that grants duty-free exemptions for dried tobacco leaves (up to 3,000 tons per year) imported from Cambodia into Vietnam was still in effect in 2020.

The industry also enjoys continued protection and direct government support for development. Similar support is also accorded to the state-owned tobacco business in Vietnam since the government’s share/ownership incentivizes the government to protect the industry’s profits. Tobacco-growing provinces in the Philippines also get preferential shares from excise tax revenues.[xiii]

[i] Cigarette transport restrictions may ease as smuggling rampant amid COVID-19 lockdown. Inquirer.Philippines. 20 Apr 2020.
[ii] LIST: Sectors Allowed Under ECQ, MECQ, GCQ. ONE News. Philippines. 13 May 2020.
[iii] Cigarette excise increases, Sri Mulyani targets 2021excise deposits to reach Rp 173 trillion. Kontan. Indonesia. 10 Dec 2020.
[iv] DJCB Opens opportunity to extend excise facilities, including payment delays. DDTC News. Indonesia. 12 June 2020.
[v] Cigarette excise rate increases 12.5%, effective February 2021. Oke Finance. Indonesia. 10 Dec 2020.
[vi] Voice Online. Smokers relieved, cabinet agreed to postpone raising the excise tax to October 2020. 7 May 2019.
[vii] 2021 Cambodia Tobacco Industry Interference Index Report.
[viii] 2021 Myanmar Tobacco Industry Interference Index Report.
[ix] Excise Tax Act. Section 165. 2017. Thailand.
[x] 2021 Lao PDR Tobacco Industry Interference Index Report.
[xi] Republic Act No. 11467. Philippines.
[xii] PMFTC opens IQOS stores in Metro Manila. Inquirer. Philippines. 4 Sept. 2020.
[xiii] Department of Budget and Management. Local Budget Memo. 81. Philippines. 4 Nov 2020.