Tobacco firm accused of ‘systemic fraud’

The local arm of the manufacturer of Marlboro cigarettes Friday accused its fiercest competitor, homegrown

p., of “systematic and endemic fraud” over alleged non-payments of duties on the tobacco leaf and filters that the latter imports.

In a press conference, PMFTC president Paul Riley said that during last Wednesday’s hearing of the joint Congressional Oversight Committee on the Comprehensive Tax Reform Program held at the Senate, a Senate Tax Study and Research Office (STSRO) study showed that Mighty had been allegedly “using imported materials to make cigarettes for export but diverting them to the domestic market without paying duties and taxes.”

“In the STSRO report, it was noted that 99 percent of Mighty’s importation of tobacco leaf and cigarette filter materials were declared for use in the manufacture of cigarettes for export only and virtually none for domestic use. Yet the company itself admitted to exporting only 1.5 percent of its total production,” PMFTC said in a statement.

Also, the report supposedly showed that Mighty had been “undervaluing the cost of tobacco and filter imports to evade customs duties and import value-added taxes.”

“[A]t least two US-based suppliers [of filter material] confirmed that they sold to Mighty at a much higher price than what was declared with the Bureau of Customs,” PMFTC cited the report as saying. “Mighty declared import prices between $0.36 and $0.40 per kilo. The US suppliers certified to the Department of Trade and Industry that they sold the filter materials from $5.35 to $6.70 per kilo.”

As for tobacco leaves, the STSRO document showed that “Mighty imported Virginia tobacco from $0.68-$0.77 per kilo while the other importers declared between $4 and $6 per kilo” while Burley tobacco was imported by Mighty at $0.68 a kilo as against the other players’ $3.50-7 per kilo.

The Senate document, Riley said, showed that Mighty has been engaged in “systemic and endemic fraud” for at least 10 years now.

While the Bureau of Internal Revenue (BIR) had already told industry players that it was investigating the allegations of fraud allegedly committed by Bulacan-based Mighty, PMFTC would not relent in its pursuit of fair competition, Riley said.

PMFTC has been losing market share to Mighty, which sells most   of its products at cheaper prices, especially in many areas outside Metro Manila.

“We hope this report will push things along. What was presented in Congress [by STSRO last Wednesday], we were alarmed by that,” Riley said.

Mighty, for its part, said the report prepared by the STSRO) “lacked probative value and objectivity.” Oscar P. Barrientos, Mighty’s executive vice president and spokesperson, said the company “cannot dignify a report that lacks probative value and objectivity.”

Barrientos claimed that the STSRO report was based largely on an earlier Oxford Economics study, which was commissioned by no less than rival PMFTC, hence “lacking in objectivity.”

Mighty’s spokesperson also said the report was still “for validation” as well as “not conclusive.”

Meanwhile, PMFTC also called on tax agencies to improve enforcement.

Once a virtual monopoly when global tobacco giant Philip Morris merged with Lucio Tan-led Fortune Tobacco in 2010, PMFTC’s market share slid to 70.9 percent in June this year from 76.7 percent in the same month last year.

The share of Mighty in domestic sales, meanwhile, continued to climb, from 17.9 percent in June 2013 to 23.9 percent in June 2014.