Gov’t eyes add’l P28B from cigarette tax

MANILA, Philippines - The government could realize additional excise tax revenues of P28 billion this year if it succeeds in cracking down on cigarette players that may be resorting to smuggling or under-declaration.

According to industry estimates submitted to Department of Finance (DOF) officials, the DOF may raise P79.5 billion in cigarette tax for 2013 or P27.9 billion higher than its forecasted P51.6 billion tax-take for the year from the product.

“The higher-than-programmed revenue is based on the over proportionate growth of and shift to the low-tax brands post the introduction of the sin tax. Currently 70 percent are low-tax brands and 30 percent are high-tax brands,” according to the estimates.

The 70 percent low-brands are equivalent to 3.5 billion packs paying an excise tax of P12 per pack or P42 billion, while the 30 percent low-brands translate to 1.5 billion packs paying P25 per pack, yielding P37.5 billion in taxes, according to the estimates.

The combined tax collection from the two tax categories is P79.5 billion, which could be realized by the Bureau of Internal Revenue (BIR) if every cigarette player pays taxes correctly.

The new Sin Tax Law or Republic Act (RA) 10351, which took effect this year, has reduced the previous four-tier tax regime to only two tax rates – low and high.

The DOF, the BIR and the Bureau of Customs are already looking into where the potential massive revenue hemorrhage may be coming from, particularly the 70 percent low-tax brands market, which is currently dominated by Filipino-owned Mighty Corp.

Officials from the company could not be reached since Saturday. However, Mighty Corp. in previous statements, has vehemently denied that it was resorting to under-declaration.

“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 in an earlier statement sent to The STAR.

Other cigarette players are pointing to Mighty Corp. because it has captured the low-brand market by selling cigarettes at P1 per stick, a pricing strategy strongly frowned upon by its competitors who claim that it is artificially low and unsustainable.