BIR probes Mighty for fake stamps use

The Bureau of Internal Revenue (BIR) is investigating homegrown cigarette manufacturer Mighty Corp. for allegedly using fake tax stamps on its products, Commissioner Caesar R. Dulay said Tuesday.

On the sidelines of a media briefing, Dulay told the Inquirer that the BIR has been receiving reports that there were “many” fake internal revenue stamps affixed on cigarette packs.

Since late 2014, the BIR has been implementing the Internal Revenue Stamps Integrated System on tobacco products. These stamps ensure that the correct excise taxes had been paid.

“We are investigating it [the proliferation of fake stamps]. We have some reports. In fact, we issued some letters of authority to Mighty and other companies,” Dulay disclosed.

A letter of authority is an official document that empowers revenue officers to examine and scrutinize taxpayers’ books in order to determine their correct tax liabilities.

Asked if other tobacco firms such as domestic market leader PMFTC Inc. had also been issued any letter of authority, Dulay said there was none.

“The NBI is also investigating and seizing fake tax stamps,” Dulay added, referring to the National Bureau of Investigation.

Dulay said the fake stamps “come from anywhere.” Industry sources claimed that the fake tax stamps proliferated mostly in the provinces where Mighty has strong sales.

At present, PMFTC controls about 70 percent of cigarette volume sales while Bulacan-based Mighty has a market share of up to 25 percent.

Once a virtual monopoly when Philip Morris International Inc. merged its Philippine operations with Tan’s Fortune Tobacco Corp. in 2010, PMFTC’s market share is sliding amid stiffer competition posed by Wongchuking family-owned Mighty’s cheaper products.

It was alleged that Mighty had been engaging in “systematic and endemic” tax fraud to keep the prices of its products lower.

World Bank data on the Department of Finance website as of September last year showed that compliance with the rule requiring tax stamps affixed on all cigarette packs dropped to as low as 75 percent that month from compliance rates consistently above 90 percent from December 2015 to August 2016.

Dulay said the proliferation of counterfeit tax stamps “definitely impact” on the collection of excise taxes, although he could not say how much. “Our collection is affected because they’re supposed to pay,” the BIR chief said. Excise taxes account for a tenth of the BIR’s annual tax take.

Industry sources said foregone revenues from fake tax stamps reach as much as P10 billion annually.

Moving forward, Dulay disclosed that the BIR would come out by July with new designs of tax stamps bearing “more details” and better security features to prevent counterfeiting.

With the implementation of the unitary cigarette excise tax of P30 under Republic Act No. 10351 since Jan. 1, Dulay last December reminded manufacturers and consumers that only three three colors of cigarette tax stamps remained.

Effective Jan. 1, all cigarettes for domestic consumption will bear pink tax stamps; orange for imported cigarettes, and green for those to be exported.

The public has been advised by Dulay that the three other previously used colors—yellow, violet and blue—must no longer be affixed on cigarette packs.

In November, the country’s two biggest tax-collection agencies seized more than P1 billion worth of fake cigarettes and tax stamps as well as counterfeiting paraphernalia through raids conducted in three Luzon provinces, the Department of Finance had reported.

Recent raids spearheaded by the BIR and the Bureau of Customs in Bulacan, Pampanga and Pangasinan yielded more than P1 billion in fake cigarettes, P175 million in counterfeit tax stamps alongside other raw materials and equipment used to churn out fake goods, according to the DOF.