Cigarette manufacturers’ prices steady, says BAT
MANILA, Philippines – The price effects of the sin tax reform law will not be evident until mid-2013 because of massive production by majority of tobacco companies before the measure took effect, said British American Tobacco (BAT) General Manager James Lafferty.
Lafferty's statement however was contrary to the government's recent announcement that prices of sin products tobacco and alcohol grew by double digits, pushing inflation to accelerate to 3% in January.
“The proof is pretty simple. The fact is that the [manufacturing] prices haven’t gone up in the market [since the implementation of the sin tax law]. There are only two [reasons] as to why the prices haven’t gone up. Number one is that there was widespread pre-production under the old excise rate, and that’s why they don’t have to raise the price or two the government is swallowing the difference, which I don’t believe,” Lafferty said speaking at a press briefing on Monday February 11.
According to Lafferty, the practice of producing at large volumes before higher taxes is legal. It’s part of managing those transitions.
“It’s well known that whenever there’s an excise reform like this, companies pre-manufacture to the old excise rates. There’s all kind of rumors in this market place that multiple month volumes have been produced at the old excise rate prior to sin tax law change. The big question is how much is pre-produced? We’re already in two months and why is it not moving?” Lafferty said.
According to Lafferty, every time there is an increase in excise rates, Bureau of Internal Revenue (BIR) collection goes down by an average of 5%, but the volumes stay up, which means there is a lot of production.
The BIR issued the Implementing Rules and Regulations for the newly signed sin tax reform measure, which raises prices of tobacco and alcohol products.
Lafferty said it would take a while before the effects of the newly implemented sin tax will be evident. “A number of months ago I was in a meeting with Senator Rector and we were talking about 15 years of the previous law which created the unlevel playing field. He made a good comment and said ‘it takes a long time to see how the law will play out,’” Lafferty explained.
“I have no doubt that the sin tax reform will work and over time it will be looked at as one of the hall mark moves of the administration. We need to be very careful to judge this law in Q1,” he added.
According to Lafferty, BAT did not join the wave of massive production. “We didn’t go out to benefit by we pre-produced to demand and we’re now producing at excise rate.”
Retail prices up
PMFTC, the merged entity of Philip Morris and Fortune Tobacco Corp., also recently stated that it has not raised the prices of its cigarette products.
The company provided a reason for higher product prices in the market.
“It has come to our attention that some wholesalers and retailers have started selling our cigarette products at higher prices. We can assume that this was in reaction to the BIR’s publication of the revised tax rates and the subsequent media coverage and pronouncements of various government authorities on this issue,” PMFTC earlier said.
President Benigno Aquino III signed in December 2012 Republic Act 10351 or the sin tax reform law, which prescribes higher tax rates on tobacco and alcohol
The law seeks to generate for government additional revenues of P34 billion in 2013. – Rappler.com