Lower revenues seen with proposed reclassification of premium cigarettes

MANILA, Philippines - London-based British American Tobacco, maker of Lucky Strike and Dunhill, said a proposal that will reclassify premium-tier cigarettes to the low tier category will result in reduced tax revenues for the government.

BAT issued a statement in response to the request filed by Philip Morris Fortune Tobacco Corp. to allow the registration of new Marlboro products in the low price market.

 â€œWe think that this move will have a negative impact on government revenues,” BAT Philippines general manager James Lafferty said.

Lafferty said Marlboro remains the leading brand in the high tier category despite the increase in excise tax.

The proposal, Lafferty said, would give undue advantage to PMFTC, BAT which would have to pay higher excise tax rates than PMFTC, he said.

Lafferty said the company might be forced to make the same move should the BIR approved PMFTC’s request.

“If reclassification is granted,  we would have no choice but to follow suit on Lucky Strike. We would be at an extreme disadvantage if we have to pay P27 excise tax next year while Marlboro, the most popular premium brand in the market, pays only P17 per pack,” Lafferty said.

In a letter to the BIR, PMFTC sought a permit to register Marlboro Original, Marlboro Gold Lights, Marlboro Menthol, and Marlboro black Menthol in the low price category to arrest its dwindling sales owing to tight competition from cigarette firms selling at P1 per stick.

The tobacco giant plans to sell these new products at below P11.50 per pack.

Under the sin tax reform law, which took effect in January this year, the government, through the BIR, is tasked to implement low and premium tax rates for cigarettes from 2013 to 2016.  By 2017, a single rate of P30 per pack will be enforced.

In the first nine months of the year, collection of excise tax on tobacco and alcohol expanded by 63.9 percent to P63.6 billion or 73 percent of the government’s collection goal of P85.56 billion this year.  Of that amount, P43 billion will come from incremental revenues from the sin tax law.

The increase in collections came with an equally significant drop in the volume of cigarettes and alcohol removals, the DOF said.