BIR eyes 3rd party auditor for cigarette companies

The Bureau of Internal Revenue is considering tapping a private entity to strictly monitor cigarette firms’ excise tax payments.

“We’re studying it. We’re working on it,” Internal Revenue Commissioner Caesar R. Dulay told reporters when asked for an update on the BIR’s plan to assign a nongovernment organization to monitor the tax compliance of cigarette companies.

He, however, noted that monitoring tobacco firms’ tax compliance was primarily a government function.

“If we can get the private sector to do it, do we have the budget for it?” Dulay said, noting that this could help address the proliferation of fake cigarette stamps.

Separately, BIR Deputy Commissioner Nestor S. Valeroso said information from third-party auditors of tobacco companies’ tax payments would help the agency find and plug the tax leaks.

In 2014, business, civil society and health groups pushed for the conduct of a third-party audit of cigarette manufacturers’ tax payments amid fears that sin tax reforms implemented starting 2012 had been undermined by chronic tax evasion schemes in the industry, specifically the use of duplicate tax stamps.

Last Wednesday, BIR Deputy Commissioner Jesus Clint O. Aranas said the BIR would expand its investigation of the proliferation of fake stamps to cover other tobacco players, not just Bulacan-based Mighty Corp.

As early as November last year, the BIR has been investigating homegrown cigarette manufacturer Mighty. Five letters of authority were issued to cover five firms controlled by the Wongchuking family.

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

Last week, Dulay told the Inquirer that the BIR had issued letters of authority to examine the books of Mighty and other companies following reports about the proliferation of fake tax stamps on cigarettes.

BIR documents showed that on Nov. 18, 2016, the agency issued letters of authority for Mighty, La Campana Fabrica de Tabacos Inc., Mighty International, Tobacco Industries of the Philippines Inc. and Wongchuking Holdings Inc.

According to Aranas, foregone revenue from the fake cigarette tax stamps was more than the industry estimate of about P10 billion yearly.

Tentative BIR data showed that the total excise tax collection last year rose to P163.5 billion from P158.3 billion in 2015.

But despite the increase in the total tax take, collection from tobacco products declined to P91.6 billion in 2016 from P99.5 billion in the previous year. This was despite the higher rates implemented last year under Republic Act No. 10351 or the Sin Tax Reform Law.