Delaying tactics
WHO FCTC Article 5.3 guideline recommendation 7.1 states that “Parties should not grant incentives, privileges or benefits to the tobacco industry to establish or run their businesses.”[1] One of the ways the tobacco industry benefits from the government is when their request for longer timeframe for implementation or postponement of tobacco control measures are accommodated. The following are examples documented from countries in ASEAN:
Cambodia:
In January 2017, six months after the sub-decree requiring graphic warnings[2] on all cigarette packs went into effect, the Health Minister issued a second warning to tobacco companies for not complying with the regulations, threatening to take legal action. When tobacco companies were unable to get any more extensions, they simply don’t comply with the law.[3]
In May 2017, the head of the Health Ministry’s tobacco and health office, admitted that some tobacco companies have not yet complied with the sub-decree, while others had from 20 to 90% implementation.[4]
By 2019, while there has been some progress in PHW compliance, approximately 29% of cigarette packs sold in the market still do not carry PHW as determined by the sub-decree.[5]
To date, the adoption of the Joint Prakas between the Ministry of Finance and Ministry of Health on how to implement the penalty (fine) has been delayed for more than two years.
Indonesia:[6]
Towards the end of year 2018, the Ministry of Finance cancelled the scheduled tax increase that will take effect in 2019 and revoked the tobacco excise tier simplification roadmap under Regulation No. 156/2018 after coming under pressure from the tobacco industry.
The Coordinating Minister on Economy also withheld the Ministry of Trade’s regulation on tobacco leaf importation restrictions due to strong opposition from tobacco farmers, clove associations, and Parliament.
At the local level, the District Head of Jombang in East Java Province postponed the implementation of its smoke-free regulation since the tobacco industry is still considered an economic stakeholder and remains a protected domestic industry.
The Mayor of the City of Bogor also postponed to implement their smoke-free regulation with provisions on banning tobacco advertisement following protests not only from the Institute for Development of Economics and Finance (INDEF)[7] and other front groups but from government officials as well. Representatives of the Ministry of Home Affairs and Ministry of Law and Human Rights called the local government’s attention to reconcile Bogor’s local policy with the national regulation (Government Regulation (PP) 109), while a member of Parliament made a special warning for local regulations “not to hamper the growth of the tobacco industry business”.
Lao PDR:[8]
The implementation of PHW was delayed by 180 days (6 months) – due to industry interference. The tobacco industry argued against it, citing that “they had a large stockpile of printed packets” and even requested a reduction in the size of the graphic image from 75 % to 50 %.
Malaysia:
In February 2016, the MOH announced they will start preparation on plain packaging of cigarettes. The statements suggested that the ministry had an implementation plan and strategy for plain packaging. The tobacco industry and lobby groups cautioned the government through statements in the media that introducing plain packaging would violate international trade laws. The MOH back-tracked on its decision,[9] the Health Minister claimed they want to talk to the tobacco companies on intellectual property rights.[10]
In 2018, Institute for Democracy and Economic Affairs (IDEAS), funded by PMI and JTI, ran newspaper articles opposing plain packaging, claiming it did not bring smoking down in Australia but instead curbed decline in smoking and that it was five years of failure,[11],[12] The plan has since been put on hold.
Since 2017, PMI started selling its IQOS heated tobacco product without PHWs and there has been no action against PMI to comply with PHW requirements on these products. According to the Control of Tobacco Products Regulation, heated tobacco products are tobacco products.
Myanmar:[13]
For the second and third year of pictorial health warning implementation, the second picture should appear on the cigarette packs from 2017 December to 2018 November 30th and the third picture should appear on tobacco products from 2018 December to November 30th 2019. To date, not all the tobacco products carry the required pictures and old pictures on packs can still be found in the market. No government action is found to have been taken.
Thailand:
In August 2018, the Ministry of Finance granted the request of tobacco farmers associations to postpone raising the excise tax from 20% to 40%, scheduled to take effect in October 2019 to October 2021 in order to reduce the burden on the tobacco industry.[14]
Vietnam:
In 2018, while Vietnam Tobacco Association gave recommendations to the Ministry of Finance to consider temporarily suspending plans to increase tobacco excise tax, the government went ahead as scheduled to increase tobacco tax effective since January 2019.[15],[16]
[1] Guidelines for implementation of Article 5.3 of the WHO Framework Convention on Tobacco Control on the protection of public health policies with respect to tobacco control from commercial and other vested interests of the tobacco industry, https://www.who.int/fctc/guidelines/article_5_3.pdf, page 8.
[2] Sub-Decree On Printing of Health Warning in Khmer Language and Pictorial on Tobacco Products Packages, https://seatca.org/dmdocuments/Cambodia%20Sub%20Decree%20on%20PHW_22%20Oct,15%20Eng.pdf
[3] https://www.khmertimeskh.com/news/36647/still-no-warnings-on-some-tobacco-packs/
[4] Sotheary P. 20 March 2017, Still no warnings on some tobacco packs, Khmer Times, https://www.khmertimeskh.com/news/36647/still-no-warnings-on-some-tobacco-packs/.
[5] Royal University of Phnom Penh, Tobacco Control Law Compliance survey, 2019
[6] Indonesia – country summary, Global Tobacco Industry Interference Index 2019. https://bit.ly/2WakwRD
[7] Institute for Development of Economics and Finance. Indonesia. https://indef.or.id/
[8] Lao PDR – country summary, Global Tobacco Industry Interference Index 2019. https://bit.ly/2ybIioo
[9] FMT, 25 May 2016, MOH buckles under pressure on plain packaging for cigarettes, FMT News, https://bit.ly/2W7NEtP
[10] Mei L. M. 21 March 2016, Health Ministry hits pause on plain tobacco packaging plan, Malay Mail, https://bit.ly/2YQdggX
[11] Malay Mail, 23 March 2018, Plain packaging: Five years of failure! — IDEAS, Malay Mail, https://bit.ly/3bcVoz8
[12] FMT Reporters, 24 January 2019, IDEAS took money from tobacco firms and opposed anti-smoking plans, says UK daily, FMT News, https://bit.ly/35FGnF4
[13] Myanmar – country summary, Global Tobacco Industry Interference Index 2019. https://bit.ly/2YhnzKp
[14] Thai Post, 29 August 2018, Tobacco Farmers satisfy when the government plans to postpone raising the excise tax. Thai Post, https://bit.ly/2SCyElG [Thai document]
[15] Ngay, T. H. 23 July 2017. Proposal to use 150 billion funds to fight illegal tobacco. Phapluat https://bit.ly/2SWGDdJ [Vietnamese document]
[16] Hai, T. 23 July 2018, Cigarette smuggling is becoming more and more complicated, Nhan Dan https://bit.ly/3fpcCfU [Vietnamese document]
Lawsuits against governments
Legal action is one of tactics that tobacco industry uses for delaying and undermining tobacco control policies. Following table showed the detail and number of litigation strategies of tobacco industry in ASEAN.
Table 1: Tobacco industry undermines tobacco control in ASEAN using legal challenges[1]
Country | Detail |
Indonesia | 13 court cases • Six juridical reviews (2010 – 2012) of the Law No 36/2009 concerning health including tobacco control, pictorial health warnings and smoke-free. • Two judicial reviews (2011) of the DKI Jakarta Governor Regulation No 88/2010 concerning smoking areas. • A judicial review (2011) of the Bogor City Regional Regulation No 12/2009 concerning No-Smoking Areas and another judicial review (2020) the amendments to the Regional Regulation No 12/2009 concerning the non-smoking area, and the prohibition of displaying cigarettes at the point of sale. • A judicial review (2011) of the Joint Regulations of the Minister of Home Affairs and the Minister of Health regarding guidelines for implementing a no smoking area in 3 different files. • A judicial review (2013) of the Law No 28/2009 concerning regional taxes and regional levies, related to regional cigarette taxes. • CSO “Healthy Jogja Without Tobacco” (JSTT) was sued by tobacco farmers for unlawful acts of using the word Tobacco for the name of the organization in 2014. • A judicial review (2020) of the Regional Regulation of the City of Bogor No 10/2018 concerning amendments to the Regional Regulation of the City of Bogor No 12/2009 concerning the non-smoking area and prohibition of displaying cigarettes at the point of sale. |
Malaysia | 5 court cases filed by Philip Morris Malaysia against the MOH for • requiring Ministry’s approval for the retail price of tobacco products, • rejecting the retail price of its cigarettes, and • requiring an increase in the selling price of its cigarettes. • Judicial review by seven Malaysian smokers on a smoking ban in eateries that was enforced in January 2019. • Judicial review by British American Tobacco (BAT) for “mini-cigar”- Dunhill HTL-Cigarillo. |
Philippines | 15 court cases • PMPMI, FTC, JTI, Mighty, La Suerte vs DOH re AO 2010-13 requiring graphic health information (5 separate cases filed in 2010). • PTI vs DOH and FDA re power to regulate tobacco products • PMFTC vs DOH re tobacco promotions (2 separate cases filed in 2011 and 2012). • PTI for declaratory relief re outdoor advertising (in 2007) • Individuals (Anthony M. Clemente and Vrianne I. Lamson) reportedly paid by PMFTC vs MMDA re smoke-free. • PTI vs. City of Balanga re city ordinance making the city’s 80-hectare University Town and its three-kilometer radius “tobacco free”. • PTI vs. City of Balanga re tobacco free generation ordinance. • Green Puff Electronic Cigarettes Inc. and Ryan Sazon vs DOH, Manila RTC and Ryan Leopando Sazon vs DOH, Pasig RTC were filed against DOH Administrative Order (AO) No. 2019-0007 that classified electronic cigarettes as health or consumer products under the jurisdiction of the FDA. |
Thailand | 3 court cases. In 2013, Philip Morris Thailand and other tobacco companies including BAT and JT filed three separate suits to challenge Thailand’s legislation increasing pictorial warnings from 55% to 85% in the Administration court. |
[1] Tan YL. and Dorotheo U. (2021). Legal challenges of the tobacco industry to undermine tobacco control in ASEAN, The Tobacco Control Atlas: ASEAN Region, Fifth Edition, December 2021. Southeast Asia Tobacco Control Alliance (SEATCA), Bangkok. Thailand, p.18.
Tax and illicit trade
Tobacco taxes and pricing measures are recognized as one of the most effective measures to reduce tobacco consumption by various segments of the population, particularly young people and the poor.[1] Since high tobacco taxes have a direct impact on production cost and revenue, tobacco companies often argue that price and tac increases will result in higher illicit tobacco consumption instead of leading smokers towards quitting or smoking less.
In Southeast Asia, there have been a number of incidents of tobacco industry interference in tax policy through the use of the illicit trade argument. One of the most prevalent industry tactics is the dissemination of fradulent data supporting the illicit trade argument to policymakers. Since 2012, Philip Morris International (PMI) has funded the International Tax and Investment Center (ITIC) and Oxford Economics (OE) to develop a series of reports including: Asia-11 Illicit Tobacco Indicator 2012[2]; Asia-14 Illicit Tobacco Indicator 2013[3]; ASEAN excise tax reform: A resource manual[4]; and Asia Illicit Tobacco Indicator 2017 Report[5]. These reports claim that illicit trade is high in Asia, particularly in countries that have high tax rates such as Malaysia, the Philippines and Singapore. Southeast Asia Tobacco Control Alliance (SEATCA), in partnership with Dr. Hana Ross from the University of Cape Town, South Africa,[6] conducted an investigation into the validity of the ITIC and OE data. The results of that investigation are published in a series of reports countering the claims made in the industry-funded reports, namely: “ITIC’s Asia-11 Illicit Tobacco Indicator 2012: More Myth than Fact[7]; A Critique of the ITIC/OE Asia‐14 Illicit Tobacco Indicator 2013[8]; Undermining Global Best Practice in Tobacco Taxation in the ASEAN Region – Review of ITIC’s ASEAN Excise Tax Reform: A Resource Manual[9]; and Review of the Asia Illicit Tobacco Indicator 2017 Report: Still Defective.[10] In these reports, SEATCA showed that the industry’s reports on illicit trade use poor quality data, rendering their results unreliable due to a biased methodology and analysis. Moreover, the industry itself provided the majority of the data for the illicit trade reports.[11]
At the national level, the industry has made several attempts to use the illicit trade argument to oppose tax reform. Since 2017, Vietnamese tobacco control advocates have initiated several tobacco tax reform dialogues with the government. However, the Vietnam Tobacco Association (VTA) often presents false illicit trade arguments to oppose the tobacco tax reform[12]. Specifically, they have argued that the tobacco smuggling rate is extremely high in Vietnam, which causes the government significant revenue losses.[13]
In addition to disseminating fraudulent illicit trade data to delay tobacco tax reform, the tobacco industry itself has been found guilty of the crime of tobacco smuggling. In 2017, the Philippines government led by the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) cracked down on the Mighty Corporation for producing counterfeit tax stamps. Nearly 120 million packs of illicit cigarettes bearing Mighty Corporation brands were impounded by the BIR and BOC in several operations across the country.[14] The company paid PHP 25 billion to the government in what became the largest tax settlement in the country’s history.[15]
Other industry to interfere with tobacco tax policy in the region
- Mobilization of front groups and development of misleading evidence to oppose tax reform in Indonesia.
Indonesia’s tobacco tax system is considered to be one of the most complex systems in ASEAN since it consists of multiple tax tiers. The complicated system creates wide price gaps and leaves room for the industry to manipulate the system. Although the government raises excise tax rates and minimum retail prices to above the inflation rate every year, simplification of tax system is urgently needed. The government plans to simplify the tax system from 10 tiers in 2018 to five tiers in 2021[16]. In anticipation of these plans, the industry has mobilized pro-tobacco groups such as farmers and consumers (kretek) associations, tobacco industry associations, labor/worker associations, employers’ associations, independent agencies, research institutions, and religious groups to oppose the tax increase simplification of the system by creating public pressure through media channels[17]. In addition, the PMI-sponsored Asia Illicit Tobacco Indicator annual report for Indonesia was conducted by the Economics and Business Research and Development Agency of Gadjah Mada University, presenting the misleading result that the tax system simplification policy will slow down the industry’s production volume and reduce the government’s revenue[18].
- Taking advantage of a poor country like Lao PDR through a preferential tax treatment contract.
In 2001, the Lao PDR government signed a 25-year Investment License Agreement (ILA) with an international tobacco company and granted them tax incentives to grow their business investment in the country. The contract was signed between the Committee for Investment and Cooperation (CIC) of Lao PDR, Coralma International[19](a French asset management company), and S3T Pte Ltd[20] (a Singaporean private company categorized as other holding companies and management consultancy services) which established Lao Tobacco Limited (LTL) as a joint venture of the government with the tobacco industry. The ILA offered tax incentives for the industry by requiring the LTL to pay the excise tax rate of 15% of the production cost (if the production cost is under LAK 1,500 per pack of 20 units) and 30% of the production cost (if the production cost is either equal to or more than LAK 1,500 per pack of 20 units). This clause is against the tax law as all tobacco companies are required to pay the excise tax rate of 30% of the retail price (2016-2017), 45% (2018-2019), and 60% (2020 onwards), plus a LAK 600 additional specific tax, including 2% of profit taxes and 200 LAK/pack of local and import tobacco for the Lao PDR Tobacco Control Fund.[21] Because of this, the government of Lao PDR lost USD 144 million in revenue from 2002 to 2017 due to the ILA.
Tobacco Tax Revenue and Tobacco Tax Revenue Loss in Lao PDR[22]
Conclusion
For years, the tobacco industry has done everything possible to circumvent effective tobacco tax policy around the world including in the ASEAN region. The illicit trade argument is one of the most common industry arguments against tobacco tax policy. The industry also uses other tactics to interfere with tobacco tax policy, including mobilization of pro-industry groups, dissemination of false/misleading research data, forcing the government to provide them with preferential tax treatment, and claiming adverse impact as a result of tax policy such as job and revenue losses in their industry. SEATCA recommends that the governments and policymakers around Southeast Asia should protect tobacco tax policies from the vested interest of the tobacco industry by taking into account the World Health Organization Framework Convention on Tobacco Control (WHO FCTC) Article 6 and Article 5.3 and its Guidelines. Governments should also consider becoming Parties to the Protocol to Eliminate Illicit Trade in Tobacco Products, which was adopted during the fifth session of the WHO FCTC Conference of the Parties in 2012. By doing so, the governments will receive assistance and guidelines to create effective measures in enforcing tobacco policy in their countries.
[1] https://www.who.int/tobacco/control/measures_art_6/en/
[2] https://www.oxfordeconomics.com/recent-releases/asia-11-illicit-tobacco-indicator-2012
[3] https://bit.ly/3fQ6e1x
[4] https://bit.ly/3dMXRSB
[5] https://www.oxfordeconomics.com/asia-illicit-tobacco
[6] https://untobaccocontrol.org/kh/taxation/the-team/
[7] https://seatca.org/asia-11-illicit-tobacco-indicator-2012/
[8] https://seatca.org/dmdocuments/Asia%2014%20Critique_Final_20May2015.pdf
[9] https://seatca.org/dmdocuments/Review_ITIC_Tax_Manual_Revised_Oct26.pdf
[10] To be inserted once the layout is ready
[11] Ibid
[12] https://bit.ly/3fQkO9n
[13] Ibid
[14] https://www.dof.gov.ph/p30-b-haul-from-mighty-tops-dof-drive-vs-tax-fraud/
[15] https://bit.ly/3612ZzL
[16] https://bit.ly/2WURztr
[17] https://seatca.org/dmdocuments/Indonesia%20TII%20in%20Tax.pdf
[18] Ibid
[19] https://www.bloomberg.com/profile/company/0305127D:FP
[20] https://www.sgpbusiness.com/company/S3t-Pte-Ltd
[21] https://seatca.org/dmdocuments/SEATCA_TOBACCO_TAX_INDEX_ART6_2019_Final.pdf
[22] https://seatca.org/dmdocuments/AsianStateOwnedTobaccoEnterprises_Report_web.pdf