Probe cigarette smuggling, gov’t urged

The Federation of Philippine Industries has urged the government to look into alleged cases of cigarette smuggling, as this creates unfair competition and deprives the government of needed tax revenues.

In a statement issued Friday, FPI called the attention of the government to a small player in the cigarette industry which, the group alleged, “made a meteoric leap and now has 18.7 percent share of market” by possibly engaging in unfair practices.

“This company sells its products to retailers at P16 per pack.  Simple arithmetic will show that after paying excise tax of P12 and the 12 percent value added tax, the company is left with P2.30 to cover direct material cost, factory overhead and operating margins. Indeed, it is impossible to manufacture low-priced cigarettes at that amount especially for a small scale manufacturer with lower economies of scale,” the FPI claimed.

“This unfair practice can undercut the competition through low prices which are made possible through illicit trade practices. Independent market research study shows that the company’s volume in the trade is much higher compared to the actual withdrawals it reports to the Bureau of Internal Revenue,” it further alleged.

According to FPI, there could be underpayment of customs duties and taxes, undervaluation of raw materials, and diversion of raw materials imported under warehousing entries.

“If proven true, this practically creates an [uneven] playing field.  Worse, it is also inimical to the stability of the country in general considering that it is cheating on the excise tax which is due to the government to fund its various sensitive programs,” the group stressed.

To beef up the government’s anti-smuggling campaign, FPI conducted last month an industry orientation for the Department of Justice (DOJ) and National Bureau of Investigation (NBI).

FPI chair Jesus Lim Arranza presented the profiles of the various industry associations of selected local manufactures and discussed the current problems in these sectors, including the nature and scope of smuggling problems; modus operandi of the smugglers; damage of smuggling to the industries; and remedies and recommendations.

According to Arranza, this is a strategic Public-Private Partnership (PPP) since the legal expertise of the DOJ prosecutors will be further complemented by the support of the local manufacturers who are hardest hit by smuggling.

“The various experiences of the different manufacturing sectors on the ground as well as data gathering will be shared by the latter particularly on the modus operandi of the unscrupulous importers.  Moreover, the FPI will be assisting the DOJ and NBI in the building, prosecution, and monitoring of these cases under the direct control and supervision of the DOJ,” Arranza added.