Illicit cigarette trading still a concern, says Tan

After the fall of Mighty Corp. as a result of the government’s crackdown on illicit cigarette trading last year, some remnants of “underground” cigarette business continue to operate locally—at a smaller scale than before but still enough to cause concern, the chief of conglomerate LT Group Inc. (LTG) said.

A significant portion of LTG’s business is under PMFTC, a partnership between its Fortune Tobacco Corp. and Philip Morris Philippines.

In a briefing, LTG president Michael Tan said the government had made substantial strides in addressing illicit trade in the country. In 2017, there were at least 45 enforcement actions against illicit traders.

However, he said there remained illicit cigarette trading—some locally produced and some imported—although to a smaller magnitude compared to the “big player” that was nabbed last year, referring to Mighty Corp.

“We’re still hopeful that enforcement will continue and the government could put an end to these illegal and illicit activities,” Tan said.

“It’s a concern because it’s also a national security issue. It could fund terrorism,” he said, noting that producers were not registered with the Bureau of Internal Revenue (BIR).

As such, Tan said he was looking at the tobacco business with “mixed” sentiment this year. Apart from the issue of these underground competitors, Tan said another P2.50-increase in excise taxes by July this year, adding to the initial P2.50 hike early this year, is another concern.

He said illicit trading should be addressed first before considering legislating further excise tax increases on top of what would be imposed in July.

Any producer who is able to sell cigarettes below P40 per pack would be questionable, he said. “The tax is already at P32.50 so how can you sell at that price,” he said.

As such, he said the group would continue to work with the government to catch those “undercutting” the industry through illicit means.

Meanwhile, LTG will earmark P10 billion to P11 billion for capital outlays this year. About P3 billion of the budget will go to property development under Eton while P2 billion will go to Asia Brewery. Tanduay will get some P500 million while Philippine National Bank will spend about P2.5 billion to boost IT infrastructure.

On other consumer businesses, Tan said the outlook was mixed. Given the imposition of new taxes on sugared beverages, he said some of LTG’s products would face challenges. However, he said the bottled water, dairy and soy milk products would not be affected. —DORIS DUMLAO-ABADILLA