Philip Morris seeks changes in Tariff and Customs Code

Cigarette manufacturer Philip Morris Philippines Manufacturing Inc. (PMPMI) is urging Congress to amend the Tariff and Customs Code and step up efforts to curb the illicit trade of cigarettes in the country.

Chris Nelson, PMPMI managing director, said the government is losing billions of pesos in revenues because locally-manufactured cigarettes like Philip Morris and Marlboro that are intended for local consumption are being smuggled out of the country to various destinations worldwide, depriving the deficit-ridden government of significant revenue from excise taxes.

"There is today a rampant smuggling and proliferation of counterfeit and contraband cigarettes in the market as well as the illegal diversion abroad of our products intended for domestic consumption alone," said Nelson.

He said the illegal cigarette trade, whether it involves genuine cigarettes diverted from their market of intended destination or counterfeit/fake cigarettes, not only threatens the company, but also puts considerable damage to legitimate distributors and retailers.

This illegal trade has significant impact on the local economy through the loss of tax revenues. We have to act now on it before the problem escalates further," said Nelson.

PMPMI manager for fiscal and government relations Carmen Laysa-Herce said the company has recommended several amendments to the Tariff and Customs Code with regards to the cigarette trade.

"One of the measures we proposed is to require the labeling of the market destination of cigarette products, whether these are for export or for domestic sale. We want this to be specified in the anti-smuggling bill," said Herce.

Another proposal is for the Bureau of Customs (BOC) and the Bureau of Internal Revenue (BIR) to have jurisdiction over locators of freeport zones such as the Subic Bay Metropolitan Authority. Currently, locators enjoy various incentives, such as exemption from excise taxes, and they are expected to oppose moves to have these privilege revoked.

Moreover, consolidators should be required to submit to the BOC and the BIR documents showing proof of export.

"Currently the function of showing proof of export can be issued by the private sector or the importing entity, but this time we want the importing companies to also submit to the concerned authorities in Manila, documents that show this much volume of cigarette products are actually going into their ports," Herce pointed out.

At the same time, transshipment of cigarette products at local ports should be limited to just two weeks instead of the existing practice of allowing them in the ports for indefinite periods of time. This should help discourage the loading of locally-manufactured cigarettes for domestic consumption into these transshipment vessels and diverted to offshore markets while also making it more difficult to enter smuggled goods into the local market.

It was noted that the volume of cigarettes brought in for transshipment in 2002 alone at Clark and Subic Freeport zones amounted to P4.4 billion. PMPMI said there were reports that imported cigarettes were diverted into the customs territory and concealed by falsifying export reports, or by substituting counterfeit cigarettes transported out from the Philippines in place of the imported cigarettes and then diverted to the customs without the payment of duties and taxes.

"Ensuring that legitimate products intended for local consumption are not smuggled out of the Philippines will provide a more level playing field among legitimate exporters and a sustainable export development program for the country. This will also ensure a steady stream of revenue for the government," said Nelson.

Herce noted that the interception of cigarettes intended for domestic sale became rampant starting in 2003 when the company opened up a plant in Batangas.

"We have reports that our products are smuggled worldwide and reach as far as Africa," added Herce.

Nelson said that the illegal diversion of genuine products is one of the most difficult problems facing the tobacco industry today.