Cigarette maker denies underdeclaring its products

MANILA, Philippines - Mighty Tobacco Corp. said it was not under-declaring its cigarette products, noting that it is able to sell P1-per-stick cigarettes because it does not pay   royalty fees to foreign companies for the use of its brands.

“While our company cannot comment on how other cigarette companies price their cigarettes, what we can say is that our company can sell one-peso-per stick cigarettes because aside from having comparatively lower administrative and operating expenses, Mighty does not pay royalty fees to foreign companies for the use of our brands of cigarettes,” said Mighty legal counsel Miguelito Ocampo.

Furthermore, Ocampo said that the Filipino-owned company has lower overhead costs because it does not pay fees to foreign cigarette brand owners.

“Mighty also does not pay service fees or management fees to any foreign company,” Ocampo said.

Apart from this, he said that Mighty uses more local components compared to its foreign competitors.

Industry sources said existing cigarette companies have asked the Bureau of Internal Revenue (BIR) to look into reports of under-declaration by Mighty Tobacco.

This is because Mighty is able to sell cigarettes at one peso per stick while others such as PMFTC, the merged entity of Philip Morris and Fortune Tobacco sell at P5 per stick.

However, Mighty said it is not the only company that sells P1-per stick cigarettes.

The implementation of Republic Act 10351 or the Sin Tax Law has allowed the emergency and re-entry of players such as Mighty Corp. and British American Tobacco. Prior to the enactment of the new law, Lucio Tan-owned Fortune Tobacco controlled 90 percent of the Philippine cigarette market. 

The Sin Taw law, implemented last year, raised taxes on alcohol and cigarettes.

Cigarette consumption in the Philippines has shifted to the cheap P1 per stick brands, an unexpected offshoot of the implementation of the sin tax law.

According to industry estimates, 25 percent of premium and sub-premium smokers have switched to one-peso brands since the law took effect last year.

Industry sources said that producers of P1 brands may be resorting to under-declaration given the lower prices.

“If the assumption is correct, government incurs an additional loss of P600-million in excise taxes for every one billion sticks of under-declared cigarettes,” an industry source said.