Tobacco firm investment hinges on tax system change

British American Tobacco is prepared to invest $200 million in the Philippines in the next five years but only if the excise tax systems would be changed.

James Lafferty, BAT Philippines general manager, on Monday said in a statement that the company is preparing plans to develop, produce, distribute and market its brands that include Lucky Strike.

But Lafferty explained that the company’s plans would be “contingent on the leveling of the playing field” in the tobacco industry.

“Currently the excise system is a barrier to entry of new players,” Lafferty said. “New brands, whether locally produced or imported, are taxed higher than old brands, [and] this is what has deterred us in the past … Fixing this is a pre-requisite for this kind of major investment.”

Lafferty said that British American Tobacco considers the Philippines to be an important market, as does other multinational corporations that want to have a strong presence in the Asia-Pacific.

“We believe that the Philippines is presently on the right track, and offers outstanding potential [to] become one of the biggest economies in the next decade,” Lafferty said.

“We want to be part of that growth and, to achieve this, we must invest heavily in the Philippines market, across all areas including investing in people to build a world-class organization,” he added.

Lafferty reiterated BAT’s support for a bill pending in Congress and sponsored by Cavite Representative Joseph Abaya. The bill is also being backed by the Department of Finance.

Another bill, drafted by Ilocos Sur Representative Eric Singson, retains the contentious provision of an amendment to the Tax Code that exacts lower taxes on cigarette brands already in the market as of 1996 as opposed to those levied on new entrants.

“Our position is, there is nothing better that can happen to the tobacco industry in the Philippines than if the market is opened up to full competition,” Lafferty said. “Right now what you have is a monopoly (that the prevailing) excise system essentially supports.”

The BAT executive is alluding to PMFTC, which combines local tobacco giants Philip Morris Philippines Manufacturing Inc. and Fortune Tobacco.

According to PMFTC, they have cornered 90 percent of the domestic market since combining their operations a year ago, but BAT puts the number at 94 percent.