'Sin' tax law advocates laud govt probe of Mighty Corp.
MANILA - The government got a pat on the back from a coalition of non-governmental organizations for going after Mighty Corp., a local cigarette manufacturer that has allegedly engaged in questionable trade practices to evade payment of correct taxes to the government.
Mighty Corp., maker of Mighty cigarette brands, has categorically denied the allegations brought by its competitors before the Department of Finance, led by Secretary Cesar V. Purisima, who promptly ordered an investigation.
A conservative industry estimate has it that Mighty Corp. has been producing and continues to produce cigarettes at a loss of P4.75 per pack and selling it at very low prices, compared to other brands, enabling it to increase its market share from 7 percent to 20 percent in the last six months of its operation.
The company is also being investigated by the Bureau of Customs (BOC) for allegedly underdeclaring its imported tobacco leaf and acetate tow, thereby allowing it to produce cigarettes, which it sells from as low as P16 to P20, or P1 or less per stick in retail stores.
In a joint statement, the Action for Economic Reforms, FCTC Alliance of the Philippines, Medical Action Group, Philippine College of Physicians and WomanHealth Philippines commended the Bureau of Internal Revenue (BIR), led by Commissioner Kim Jacinto-Henares, for launching an investigation of the Malolos, Bulacan-based cigarette maker.
The members of the group are known to have advocated the passage of the “sin” tax law, which is supposed to effectively increase the price of cigarettes through an excise tax of P12 per pack, plus a value-added tax of P1.58. The price increase was widely believed to be an effective strategy to discourage cigarette smoking, particularly among the poor.
Apparently, however, some companies seemed to have managed to promote their cigarettes by lowering the sales price through questionable trade practices, such as smuggling and underdeclaration of actual sales volume to avoid taxes.
An exclusive report by the BusinessMirror revealed that, based on data from the BOC, the BIR and independent sources, the government could have lost P4.9 billion during the first six months of the sin-tax law’s implementation from one cigarette maker alone.
“The BIR’s effort to scrutinize Mighty Corp. gladdens us as it demonstrates our government’s firm commitments to a] achieving the health and revenue objectives of the sin-tax reforms and b] making taxpayers compliant. The accusation that Mighty Corp. has not been paying the proper taxes is credible since its products are sold at a very cheap and artificial price, a price that is below production costs,” the statement said.
According to the group, “the artificially depressed price of Mighty Corp. cigarettes undermines both the revenue and health objectives of the sin-tax law.”
Consumers, especially the poor, have shifted from the higher-priced brands to the cheap Mighty products. As a result, Mighty’s market share has significantly increased, the group said.
“Mighty’s practice of artificially depressing the price of cigarettes creates a dangerous situation that encourages other cigarette manufacturers to follow Mighty. We can anticipate the other tobacco manufacturers to follow suit by introducing lower-priced brands, by hook or by crook, to regain or protect market share. This behavior will undermine the health and revenue objectives of the sin-tax law,” the group added.
The BIR’s investigation will hopefully lead to the filing of criminal charges, if the allegation of tax evasion is proven, the group said, as it urged the government to introduce other measures to effectively address illicit trade or smuggling.
Among the measures it sees as valuable to prevent illicit trade or smuggling of cigarette and tobacco products is the adoption of a tracking and tracing system.
“A tracking and tracing system, by way of having unique identifiers, enables the regulator to monitor the movement of tobacco products throughout the value chain,” the group said.
According to the group, the introduction of the tracking and tracing system is, likewise, the means to institutionalize tax-administration reform beyond the term of Henares. “Thus, it is also a means to protect the gains of the sin-tax reform for the longer term.”