Cigarette firm’s ability to abide by minimum price rule held in doubt

MANILA, Philippines - Philip Morris Fortune Tobacco Corp. (PMFTC) has expressed doubts about the ability of Mighty Corp. to adhere to a specified minimum price for cigarettes.

“Mighty could not possibly comply with a minimum price as they sell more than 95 percent of their products below tax and cost,” PMFTC president Paul Riley said in response to the Bulacan-based cigarette firm’s earlier pronouncement it was supporting a government proposal that seeks to set a floor price on all  tobacco products, aimed at creating a level playing field in the industry.

Bulacan-based Mighty Corp. (MC) is backing a proposal that seeks to set a floor price on cigarettes to help prevent major industry players from undercutting prices.

“We are all for it. We believed that a minimum floor price for cigarettes will further strengthen the industry and protect local manufacturers. At the same time, we believe it will address health concerns by putting cigarettes farther from the reach of the youth and the poor,” Mighty executive vice-president Judge Oscar Barrientos said.

Riley said Mighty would be forced to raise prices of its products if it were to comply with the government’s  Internal Revenue Stamps Integrated System (IRSIS) which is designed to collect the right amount of excise tax on cigarettes.

The IRSIS is a track-and-trace system that involves the affixture of tax stamps on cigarette packs.  It will reflect when the cigarette was made as well as when taxes were paid.

The Bureau of Internal Revenue (BIR) has required all locally manufactured packs of cigarettes to bear the new stamp tax beginning Dec. 1.  The original deadline was set on Oct. 1 but the BIR decided to move it to give its printing agency more time to prepare for the new system.

Imported cigarettes, on the other hand, need to carry the new stamps effective April 1, 2015.

“If Mighty applies tax stamps on all their packs as required by law as of Dec. 1 then their prices in the market will have to increase.  We will hold them accountable for 100 percent tax stamp compliance,” Riley said.

Mighty’s market share surged to more than 20 percent from only seven percent in 2012  by selling cigarette sticks at P1 each, way  cheaper than its major competitors and below its production cost.

Riley said  while PMFTC is not opposed to the setting of a minimum price for cigarettes, the government should first give the tax stamps a chance to address the widespread availability of illicit tobacco products in the domestic market.