Irresponsible statements

Just recently, Mighty Corp., the country’s oldest Filipino-owned cigarette manufacturer, came out with a strong statement regarding allegations that it may be using fake tax stamps on its cigarette products.

According to MC executive vice president and spokesperson Oscar Barrientos, the company’s operation is transparent and closely monitored by revenue authorities from sourcing of raw materials to manufacturing and withdrawals of cigarettes.

He said MC’s operation is the only one monitored by close-circuit cameras as required by the Bureau of Internal Revenue (BIR), adding that the company spearheaded the campaign all over the country against the proliferation of fake cigarettes using fake stamps.

It will be recalled that the BIR has installed a close circuit television monitoring system (CCTV) on all production and withdrawal points at MC’s Bulacan factory. The system was supposed to be implemented for all cigarette manufacturers, including market leader Philip Morris, but this never happened.

Barrientos was reacting to a statement reportedly made by BIR commissioner Cesar Dulay that they would investigate MC for allegedly using fake tax stamps on its products.

Barrientos said that while their company is open for scrutiny by the BIR, the bureau should also investigate multinational companies and their local partners who are known for importing large quantities of raw materials without paying correct taxes, to the prejudice of local farmers.

The BIR chief should know better than to make irresponsible statements to the media that can cast doubts on the reputation and integrity of any entity without an iota of a probable cause.

First of all, Dulay should know that BIR itself has been monitoring the production and withdrawals at Mighty’s factory in Bulacan, in particular, to make sure that their products are properly stamped. The company has never complained of unequal treatment, given that other cigarette companies do not undergo the same scrutiny from the bureau. And here is the BIR chief still having the gall to even say that they may investigate MC for possibly using fake tax stamps?

Didn’t it even occur to Dulay that the fake tax stamps are possibly on fake, smuggled Mighty cigarettes? After all, the BIR, Bureau of Customs, and the NBI have seized so many fake Mighty cigarettes and other brands in the past so this should not be a surprise.

MC revealed that two years ago, Congress asked Customs commissioner John Sevilla to look into the highly irregular release of 500 containers of raw materials for the manufacture of cigarettes from the customs zone in Manila. The investigation, involving a multinational company, was never heard of again.

The BIR should use its limited financial and human resources on more productive endeavors, say, going after companies and professionals who do not pay the right taxes so that Congress does not have to impose new or increase taxes, or to take away tax exemptions already being enjoyed by senior citizens, instead of launching some kind of witch hunt.

Our government should start appreciating the fact that Mighty, the only wholly Filipino owned cigarette manufacturing company in the Philippines, is buying a much much bigger share of its tobacco leaf requirements locally compared to the bigger brands, some of which are importing as much as 70 to 80 percent of their tobacco requirements because they believe that locally produced tobacco is not good enough and is of low quality.

Regressive tax system

House Bill no. 4144, which proposes a retention of the two-tier cigarette excise tax system and which has received overwhelming support from the House of Representatives, has been transmitted to the Senate ways and means committee.

The bill calls for an excise tax of P32 a pack on lower priced cigarettes and P36 for those that are higher priced. It also proposes for an annual five percent increase in the excise tax beginning 2018.

Under the Sin Tax Reform Law or RA 10351, tobacco products had a two-tiered tax in 2016. But beginning Jan. 1 this year, a unitary rate of P30 per pack was imposed.

Former socio economic planning secretary and NEDA chief Romulo Neri believes that a unitary tax system is regressive and anti-poor since both the rich and the poor will pay the same P30 tax per pack.

He said that in countries where tobacco use is inversely related to income, the regressivity of tobacco taxes is exacerbated. In the Philippines, the poor use up 2.8 percent of their income in tobacco consumption, while the rich spend only 0.8 percent. The burden of paying the same unitary specific tax will have a much heavier impact on the poor than the rich, making even worse it’s already regressive nature, he said.

According to Neri, this is the reason why in European Union countries, they impose two types of taxes on tobacco simultaneously: a specific tax component to set a minimum floor high enough to discourage smoking and at the same time an ad valorem tax so that cheaper brands will pay less taxes than the premium brands. This make the tax system less regressive for the tobacco consumer and levels the playing field between the manufacturers of cheaper brands vis a vis the makers of premium brands, he said.

Neri added that based on a report by SEATCA (Southeast Asia Tobacco Control Alliance) in 2015, ad valorem and multiple tax systems and not unitary is the dominant mode of imposing taxes on tobacco in Southeast Asia.

The report said that ad valorem tax is imposed in Cambodia, Myanmar and Vietnam, while Thailand, Malaysia and Laos use a mix of specific and ad valorem. Indonesia uses multiple tiers of specific taxes on tobacco. Only Singapore and Brunei practice a unitary specific tax system.

Neri also explained that contrary to the claim of its detractors, HB 4144 will not increase smoking prevalence since it will increase tobacco taxes at an even higher rate.

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