LTG worried by ‘sin tax’ leakages

LT Group Inc. sees “illicit” cigarette trade remaining a key challenge for the conglomerate this year as it pleaded for additional safeguards from the government to level the playing field for tobacco manufacturers and to plug alleged excise tax leakages.

“There have been some positive developments in the tobacco industry but the illicit trade that has kept prices abnormally low remains an obstacle to a level playing field that will enable us to grow profitability over time,” LTG president Michael Tan reported during the company’s annual stockholders meeting on Monday.

“We look forward to the implementation of tax stamps toward the end of the second quarter of 2014 but will continue to work for the implementation of additional safeguards against the illicit trade that include CCTV cameras for the 24/7 monitoring and third party audit of all cigarette factories,” he said.

Starting June, the government will require manufacturers to purchase and paste numbered stamps on each pack of cigarettes. LTG believes, however, that strengthening surveillance efforts would further help the industry and the government itself address tax leakages.

In 2013, tax revenues lost to illicit cigarette trading were estimated at P15.6 billion. In the first four months of 2014, taxes lost due to undeclared volume had reached P7.3 billion, said Paul Riley, president of PMFTC Inc., which was created from the merger of the group’s Fortune Tobacco with Philip Morris.

Illicit trading was attributed to one competitor which had kept the price of cigarettes at an “economically unsustainable” level—below the cost of excise tax plus valued added tax. In 2013, PMFTC’s market share dropped to 79 percent from 91 percent in the previous year. Asked whether he thought that PMFTC had already seen the worst, Riley said at this point, the business was now “stable” but if “something can be done, [if] authorities can act, then it can only improve.”