Local manufacturers’ group back unitary cigarette tax

An association of local manufacturers has called on the Senate to junk the Lower House-approved bill to revert to the two-tier cigarette excise tax system that is being backed by homegrown Mighty Corp., which is now being investigated for allegedly using fake tax stamps.

“How can the Senate act on a tax bill openly being pushed by a company now under investigation for tax evasion? No senator, especially the reelectionists, would want to be associated with this bill,” Federation of Philippine Industries chair Jesus L. Arranza said in a statement.

Arranza was referring to House Bill (HB) No. 4144, which the Lower House already passed before Congress went on Christmas break even if it was filed only last October.

HB 4144 was proposing that the two-tier system be maintained by slapping an excise tax rate of P32 a pack of cigarettes priced P11.50 and below as well as P36 for those priced higher. It also proposed an annual 5-percent increase in the excise tax beginning 2018.

The bill was already transmitted to the Senate ways and means committee.

But under Republic Act No. 10351 or the Sin Tax Reform Law, tobacco products were slapped a unitary rate of P30 a pack starting Jan. 1 this year, following a two-tier system last year wherein cigarettes priced P11.50 a pack were taxed P25 while those priced higher were slapped P29 a pack. These adjustments under the Sin Tax Reform Law took effect at the start of the year.

Arranza noted that “Mighty, represented by former National Economic and Development Authority director general Romulo Neri, had testified before the House ways and means committee that they favor HB 4144, which seeks to impose higher excise taxes on cigarettes while changing the current unitary system to the old two-tier structure that bred the practice of tax under-declaration for low price cigarette manufacturers.”

For Arranza, “he who comes to court should come with clean hands,” as he cited that the Bureau of Internal Revenue (BIR) was currently investigating Mighty.

Last week, Internal Revenue Commissioner Caesar R. Dulay told the Inquirer that the BIR already issued some letters of authority to Mighty and other companies upon receiving reports on the proliferation of fake tax stamps in cigarettes being sold especially in the provinces. 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.

Finance Secretary Carlos G. Dominguez III also last week said that the proliferation of fake cigarette tax stamps was “a matter of serious concern,” hence ordered the BIR to further tighten enforcement.

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.

According to Dulay, the proliferation of counterfeit tax stamps “definitely impact” on the collection of excise taxes, although he could not say by how much. Excise taxes account for a tenth of the BIR’s annual tax take.

Arranza said industry estimates showed that foregone revenues from fake tax stamps reached as much as P10 billion annually.

The BIR would come out by July with new designs of tax stamps bearing “more details” and better security features to prevent counterfeiting, Dulay had said.

Arranza had earlier pointed out that reverting to the two-tier cigarette excise tax system would violate the country’s antitrust law.

“Imposing two tax rates on cigarettes is creating market segmentation that favors manufacturers that sell cheaper brands and are subject to lower taxes. It’s against the competition law. If you are going to have a bigger market share, it should stem from fair competition in the market and not because the tax system is favoring you,” Arranza explained.

“Once HB 4144 is passed in the Senate and becomes a law, I will file a case because that’s anticompetitive behavior,” according to Arranza.

The Department of Finance recently said that Sen. Juan Edgardo “Sonny” Angara had already informed them of the ongoing review of RA 10351.