Mighty as swell

The little known Bulacan-based cigarette maker called Mighty Corp., owned and managed by the Wongchuking family, now faces fire from the Aquino (Part II) administration for alleged heavy smuggling and massive tax evasion.

Moreover, health advocate groups are joining the fray, even praising the Bureau of Internal Revenue—BIR boss Kim Henares, in particular—for springing upon Mighty the much awaited probe on the tax evasion allegation.

Based on the survey done by the government, this vice called smoking is still rising despite the supposedly “prohibitive” excise tax that the Aquino (Part II) administration imposed on tobacco products starting last January.

Part of the reason, according to health advocates, must be the suspicious low-priced cigarette of Mighty, sold at ex-factory price of P14.70 per pack, even inclusive of both excise tax and VAT at P13.58 per pack, netting it only P1.12 per pack.

The implication is that the company can sell cigarettes at such a crazy low price because it must not be paying the correct taxes of P13.58 per pack on everything coming of its factory.

Surprise—with various media reports on its alleged smuggling activities and tax evasion, reportedly costing the government almost P5 billion in taxes in only six months, our heroic Mighty responds with a simple general denial: The reports have no basis.

The reports actually lifted heavily from a memo issued by Finance Secretary Cesar Purisima to the BIR and the Bureau of Customs, a rather detailed memo of more than 10 pages, giving both BIR and BOC only until last August to, first, stop the illegal activities of Mighty and, second, file the necessary court cases.

The August deadline set by Purisima came and went, but nothing happened in both the BOC and BIR. One reason brought up by the BIR was that it would take some time to build a tight case against the company. Hmmm.

But please take note that Purisima wanted the BIR and BOC to stop—immediately—the supposed revenue hemorrhage that the government was suffering from the hands of Mighty.

The authorities at one time even seemed to adopt the line of defense taken by Mighty—you know, all those various reports were nothing but some demolition job done by its competitors.

Really, why could the BOC and the BIR not just stop Mighty? Until today, several months after Purisima issued the order, our beloved Mighty still has to answer those damning items in the Purisima memo and the news reports.

For instance, did Mighty actually import tobacco leaf in 2011 and in 2012 at a surprising low cost of only $0.68 per kilo, and did it import acetate tow in the same years at $0.30 per kilo?

According to the Purisima memo, which even quoted official records of the BOC and the National Tobacco Administration (NTA), the cheapest tobacco imported by the country in those two years was actually $3.39 per kilo —or almost five times the price claimed by Mighty in its importation.

As for the acetate tow, the same agencies recorded the cheapest importation in those years at $5.26 per kilo—or more than 17 times the price claimed by Mighty.

Here is the thing with Mighty: It has government-certified “bonded warehouse” in its factory site, which technically should allow it tax-free importation, provided the imports are bound for re-export.

At one time Purisima already wanted to abolish the 50-year-old outdated bonded warehouse scheme, although most of the warehouses were outside the factories of exporting companies.

Look, our darling Mighty’s bonded warehouse has been right there at its factory, and nobody of course could expect the BOC to watch the freaking warehouse 24/7.

Really, how conducive would such a set-up be to the ways of the company?

And our darling Mighty even insisted that its importations were not challenged by the BOC, and thus everybody else should now presume “regularity” in its bonded warehouse operations and importation.

It is just that down here in my barangay, it is hard for the guys to presume, well, “regularity” in official import documents, showing tobacco leaf importation of $0.68 per kilo, as against the cheapest prevailing price of $3.39 per kilo for tobacco of whatever grade or quality from anywhere in the world.

In its response to the media exposé, our darling Mighty also was rather quiet on claims of health advocates and other civil society groups that it was selling cigarettes at suspiciously low price of P14.70 per pack. Really—it was just “yes” or “no.”

All along the BIR was in possession of “official receipts” issued by our darling Mighty, showing a price of P14.70 per pack. What the company should have explained to the BIR and the civil society groups was the breakdown of the remaining P1.12 per pack (its margin) to cover its manufacturing and distribution costs.

The company claimed that it was not really selling cigarettes at a loss. Great. All the more that those groups deserved to know at least how much was Mighty’s profit margin at the price P1.12 per pack, which it applied from January to October this year.

Incidentally, as if trying to defend Mighty, some BIR officials at one time said it was the prerogative of the company if it wanted to lose money. Really now, the BIR officials did not get suspicious at all with such an improbable pricing scheme?

When reports came out regarding the suspicious activities of the company, it recently raised the price of its “Mighty” brand to P18.30 per pack. Such timing indeed!

Anyway, here is another thing regarding the issues on our darling Mighty: Starting this January, the excise tax on cigarettes is scheduled to go up by another P5 per pack. Let us see if it will raise its price by P5 per pack!

Estimates by authorities put the total revenue loss due to the alleged illegal activities of Mighty at P5 billion during the first six months of 2013.

Yet, the BIR has been running after professionals (particularly lawyers and doctors), plus small businesses in “tiangge,” and all those supposedly good restaurants.

No wonder, rumors even came up that the BIR was imposing “donors tax” on any help given by corporations to victims of Supertyphoon “Yolanda” and the earthquake in the Visayas.

Look, the BIR put out newspaper ads apparently to shame the finest restaurants in Quezon City that paid what the BIR claimed were measly amounts in taxes. How much did the ads cost, and how effective were they in raising the BIR collection?

From what I gathered, the cost of implementation for stopping some suspected hanky-panky in a company like Mighty should be negligible—perhaps just the price of CCTVs installed at its factories, or the use of third party monitoring of its production.

You see, the excise tax on cigarette is computed at the factory, based on what production is coming out of the company for delivery to the market. Perhaps the government can even install cameras and third party system at the factories of all the cigarette companies here.

And here we have our darling Mighty saying that everything is just a smear campaign orchestrated by its competitor. You know—a demolition job!

It forgot that health advocates heaped praises on BIR chief Henares for starting an investigation on its activities. Moreover, according to the Action for Economic Reforms and the Framework Convention on Tobacco Control, the charges against Mighty were “very credible.”

Let me see if I got it right: And so it was all just a demolition job, perfectly executed by a weird combination of multinational cigarette companies and their strange bedfellows called health advocates, plus all those legislators, not to mention the DOF, BOC and BIR. Isn’t that mighty swell?