Tax leakage continues in cigarette manufacturing – PMFTC

MANILA, Philippines - Significant revenue leakage continues to occur due to tax evasion, said Philip Morris Fortune Tobacco Corp.

PMFTC, a joint venture between global giant Philip Morris and billionaire Lucio Tan’s Fortune Tobcco Corp., said that while the government exceeded its excise collections target in the first half, there was still room to further shore up revenues by addressing tax evasion.

Collection of excise taxes on so-called sin products grew by nearly a third  from January to June to P46 billion or 31.6 percent higher than the government’s goal for the same period.  Bulk of the total or P28.18 was accounted for by excise tax payments by cigarette firms, representing a 44.4-percent jump from the P19.51 billion recorded a year ago.

“The release of these figures puts into stark light the significant tobacco excise tax leakage that remains unabated in 2014.  This is denying billions of pesos in taxes that would have otherwise funded tobacco growing regions, and public health spending, as envisioned by the new Excise Tax Law,” PMFTC said.

PMFTC said it paid P23.6 billion or 85 percent of the P28.18 billion collected from  cigarette firms.

“In terms of absolute tax paid volume for this period, of all cigarette packs that were produced and where tax was paid in January to June, more than eight out of 10 of these packs we manufactured at PMFTC facilities,” PMFTC said.

“According to market share data from Nielsen, Mighty, now a large scale manufacturer, has around 24-percent share of the total cigarette market.  In fact even Mighty in public statements in January this year, claimed to have a more than 20-percent share of the Philippine cigarette market,” PMFTC said.

The Nielsen survey also showed Japan Tobacco Inc. capturing a 2.6-percent share of the Philippine tobacco market while Anglo American has 1.7 percent and British American Tobacco, 0.7 percent.

PMFTC, however, noted the discrepancy between tax payments made by Bulacan-based Mighty and its market share, which according to a survey done by Nielsen Corp., has grown above 20 percent.

“According to market share data from Nielsen, Mighty, now a large scale manufacturer, has around 24-percent share of the total cigarette market.  In fact even Mighty in public statements in January this year, claimed to have a more than 20-percent share of the Philippine cigarette market,” PMFTC said.

“The apparent gap between the market share of Mighty Corp. and their likely percentage of total tax paid withdrawals in January-June 2014 is very large and raises a lot of questions,” it added.

Japan Tobacco International has market share of 2.6 percent while Anglo American has 1.7 percent and BAT 0.7 percent.

 PMFTC president Paul Riley is hopeful that the Bureau of Internal Revenue’s stamp tax project would help plug tax leakage and generate additional revenues for the government.

The project, which seeks to safeguard the country from illicit tobacco smuggling, is expected to be implemented beginning Sept.1.

The new stamps have a machine-readable quick response (QR) code that, once scanned, will show when a particular pack of cigarettes has been manufactured and when the appropriate taxes have been paid.                                                                               

‘We are hopeful that the soon to be introduced tax stamps, where tax paid evidence will be applied to every pack manufactured for the Philippines market, will go a long way to addressing the issue of large scale leakages, and we will fully support the BIR in its implementation and rigorous enforcement,” Riley said.

Tobacco manufacturers have until the end of the month to sell or pull out of retail shelves all products without the required stamp tax.

 Mighty executive vice-president Oscar P. Barrientos, earlier expressed reservations over the government’s tax stamp project, saying it might not yield the desired results.

Barrientos cited a similar program that was enforced by the government but was suspended in the 1980s due to the proliferation of counterfeit stickers.

Based on a recent study done by Oxford Economics and International Tax and Investment Center (ITIC), the Philippines lost some P15.6 billion in revenues due to non-payment of correct taxes by cigarette manufacturers.

The same report showed that consumption of domestic illegal tobacco grew nearly three-fold to 17.1 billion last year.

For this year, the BIR is eyeing a 22-percent growth in tax collection from tobacco and alcohol products to P104.79 billion.