Smoke scream

After imposing a ban on smoking in the entire country, the administration of the motorbiking Duterte Harley was reportedly still “studying” an offer from a cigarette maker to settle its multibillion-peso tax case.

That is Mighty Corp., a Filipino company based in Malolos, Bulacan, the target of highly publicized raids after raids by the Bureau of Internal Revenue and the Bureau of Customs early this year.

The Department of Finance announced it would study the offer, but it seemed to be only a shout out, a scream to the public for reaction, perhaps wanting for support.

To the guys down here in my barangay, the deal was as good as approved.

For one, Mighty would supposedly settle the case by selling its assets to the foreign firm Japan Tobacco International, or JTI, maker of the Mevius, Camel and Winston cigarette brands here.

It seemed that JTI won over another foreign company, British American Tobacco, or BAT, maker of old brands such as Lucky Strike, in the fight for control of Mighty, the second biggest cigarette company in the Philipines.

Reports said that BAT offered P32.5 billion for the assets of Mighty, which would then use part of the proceeds to settle its tax case.

On the other hand, JTI offered Mighty P45 Billion, plus more than P5 billion to pay for the obligatory 12-percent VAT on the transaction.

In the BAT offer, the administration would be assured of getting only P20 billion in tax settlement by Mighty, compared to the P25 billion in the JTI offer, i.e. including the P5-billion VAT payment.

As for Mighty, it was also a no brainer, because the JTI offer would yield some P8 billion more than the BAT offer.

Still, Mighty and JTI had to ask the DOF for its blessing, precisely because Mighty meant the deal for settling its tax case.

That the DOF would shoot down the deal, would be highly unlikely.

The government of Japan, through its finance ministry, still owned a good portion of JTI, perhaps up to 30 percent at this time, after the government gave up the tobacco monopoly in that country about 20 years ago.

From what I gathered, Finance Secretary Carlos Dominguez and Japanese Finance Minister Taro Aso have also been quite good friends.

Well, they co-chaired the recent 20th Asean + 3 (together with Japan, China and South Korea) meeting, in which the Duterte administration wrapped up the P450-billion ODA committed by Japan Prime Minister Shinzo Abe.

By the way, that package would pay for the flagship projects of the administration: The subway system in mega Manila and the high speed rail between Clark (Pampanga) and Metro Manila.

Nobody would be surprised if the Japanese finance minister personally pushed for the JTI-Mighty deal to Dominguez.

It was not as if JTI was a neophyte in the frenzied take-over game in the world tobacco scene in the past 20 years.

Indeed, JTI has been on a buying spree as it bought US firm RJ Reynolds (brands like Winston), and British firm Gallaher (Benson and Hedges), plus four huge tobacco leaf trading firms in Brazil, South Africa and the United States.

Also, compared to other multinational cigarette companies, JTI could boast of high profitability, with 2016 profit of $4 billion on a $10-billion revenue, or an amazing 40 percent, which showed how still rewarding the tobacco business could be.

Anyway, with the JTI’s certain acquisition of Mighty, which was the second largest cigarette company in the Philippines, next only to Philip Morris Fortune Tobacco, control of the lucrative local cigarette market by foreign companies would finally become total.

By the way, the BIR slapped Mighty with a tax liability of P38 billion.

The company could also have contested the BIR assessment, fighting all the way to the Supreme Court in the next several lifetimes, as many others did in the past.

As it was, the Department of Justice still had hundreds of pending cases, all carryover from the wholesale filing of cases during the Aquino (part II) administration.

The government even filed cases against ordinary employees of Asian Development Bank, and some small bars and restaurants in Makati. Really, there was a case against a small company providing janitorial services.

And so, with the JTI deal in the bag, the tax story on Mighty would seem to be at its conclusion.

Hopefully there would be a “next one.”