Traders urge tight watch over maker of cheap cigarettes

MANILA, Philippines—The chair of the 800-member Federation of Philippine Industries (FPI) on Monday called for a “24/7 close monitoring” of the trading practices of low-cost cigarette manufacturer Mighty Corp. by the Bureau of Customs (BOC)  and  its mother agency, the Department of Finance (DOF).

In a phone interview, Jesus Lim Arranza said that would be best not only for the BOC and the DOF but also for Mighty Corp., which operates a cigarette factory in Barangay (village) Tikay, Malolos, Bulacan.

“For the government, the move would prevent further revenue leakages while its investigation of Mighty’s business practices is ongoing, and for the cigarette firm, a chance to prove its innocence in the serious allegations it is facing,” Arranza told the Inquirer.

At the same time, Arranza lauded the customs bureau for suspending Mighty’s license to operate a bonded warehouse.

In a Jan. 16 memorandum, Customs Commissioner John Phillip Sevilla directed Mario Mendoza, district collector at the Port of Manila, to immediately implement the suspension order.

The move, he said, was necessary to prevent revenue leakages while the company’s trade practices were under investigation.

“The initial report of a DOF task force reveals that Mighty Corp. committed serious violations of tariff and customs laws, rules and regulations, resulting in huge revenue losses to the government,” Sevilla said in a memo.

In a statement, Mighty Corp. executive vice president Oscar Barrientos last week said the suspension order did not cover the firm’s regular importation for the domestic market.

“Nothing has changed and until such time that we receive the final report of the task force, it will be business as usual,” Barrientos said.

“The company will continue to cooperate with the authorities pending the full and final results of the inquiry being undertaken by Task Force Mighty Corp. We will address allegations at the appropriate time as soon as we receive the final report on the findings,” he added.

According to customs sources, the suspension order was expected to seriously disrupt the firm’s business operations, mainly the importation of tobacco leaves and other raw materials used in cigarette manufacturing.

The directive would also compel the company to declare every single imported item it would use in the production of cigarettes for domestic consumption and pay the appropriate duties.

The operation of a customs bonded warehouse had allowed Mighty Corp. to import duty-free tobacco items, supposedly for re-export to other countries.

In an earlier letter to the BOC, Arranza pointed out that “Mighty Corp., which used to have a miniscule portion of the cigarette market, has made a meteoric leap and now has an 18.7-percent share of the market.”

“Interestingly, Mighty 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. Two of our members who are from the cigarette industry asserted that it is impossible to manufacture low-priced cigarettes at that amount, especially for a small-scale manufacturer like Mighty with lower economies of scale,” he said.

According to Arranza, some FPI members had “shared data with customs staff showing a possible underpayment of customs duties and taxes, undervaluation of raw materials and the diversion of raw materials imported under warehousing entries but which were actually used for domestic consumption without payment of the required duties and taxes.”