FPI urges Mighty Corp. to answer tax fraud allegations

MANILA, Philippines — The country’s biggest organization of domestic manufacturers has joined calls urging homegrown cigarette firm Mighty Corp. to answer the allegations that it has been engaging in “systematic and endemic” tax fraud.

“Mighty Corp. should answer the serious charges of fraud in its importation practices uncovered in a recent government report,” the Federation of Philippine Industries (FPI) said in a statement Monday.

Also, FPI called on the Congressional Oversight Committee on the Comprehensive Tax Reform Program (COCCTRP) to conduct another hearing in order to give Mighty a “chance to clear its name.”

According to FPI chairman Jesus L. Arranza, the Senate Tax Study and Research Office (STSRO) report presented during last month’s joint COCCTRP hearing at the Senate contained allegations that were “too serious to ignore.”

For instance, Arranza said, the STSRO report alleged that Mighty imported “huge volumes of tobacco leaf, which it declared for export but were diverted to domestic consumption.”

Arranza also expressed concern over charges that import shipments of acetate tow — a raw material for cigarette filters—had also been declared for export goods but were instead used in products sold locally.

The Senate report also contained allegations that Mighty had declared import prices of acetate tow as well as Burley and Virginia tobacco leaves at prices way below their suppliers’.

“[T]hese are serious findings and some of them may constitute falsification of commercial documents punishable under the Revised Penal Code,” Arranza pointed out.

“We believe the joint congressional oversight body should look deeper into this matter and make the necessary recommendations… [T]his will also allow Mighty to air its side,” he said.

In response to the STSRO report, Mighty said last month that it was “inconclusive” and was merely based on an Oxford Economics study, which had been commissioned by rival PMFTC Inc.

PMFTC has been accusing Mighty of dodging payments of taxes and duties in a systematic as well as endemic manner.

In a separate statement issued also on Monday, the Bureau of Internal Revenue (BIR) said the PMFTC-commissioned joint report of Oxford Economics and International Tax and Investment Center titled “Asia-14 Illicit Tobacco Indicator 2013,” which revealed “fast-rising illegal cigarette trade” in the Philippines, was “incomplete.”

The report alleged that almost one out of five or 18.1 percent of the 105.5 billion cigarette sticks sold in the country last year could be “attributable to illicit consumption.”

The BIR pointed out that such presumption went in contrast to the rising collections of excise and so-called “sin” taxes on tobacco products as well as alcohol.

BIR data presented during the COCCTRP hearing showed that from January to September, collections from sin taxes slapped on tobacco and alcohol reached P37.24 billion, 45.5-percent higher than the P25.6-billion target set by the agency under the sin tax reform law.

Collections from tobacco products during the first nine months amounted P28.79 billion or 86.3-percent more than the P15.45-billion target.

As a result of the implementation of the sin tax law, total excise tax collections rose to P78.34 billion during the January to September period. Excise revenues without the sin taxes would have stood at only P41.09 billion during the nine-month period.

Last year, total sin tax collections from tobacco and alcohol products hit P51.12 billion, up 50.6 percent from the target of P33.95 billion for 2013.

The sin tax collection target for 2014 is P42.86 billion, which BIR Commissioner Kim S. Jacinto-Henares has said the government “will exceed.”

Amid allegations of illicit consumption of cigarettes in the domestic market, which the BIR acknowledged “has become a worldwide concern,” Henares maintained that her agency and the Bureau of Customs have been “very consistent in [the] fight against smugglers of goods, as this affect our revenues.”

“We implemented various measures to counter illicit cigarette activities such as implementation of stamp tax on cigarettes. We have also acted on reports by sectors to address allegations of mis-declaration / under-declaration, and we are strictly monitoring removals of cigarettes products to ensure that those that are sold in the market are properly taxed,” Henares pointed out.

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