BAT: Sin tax reforms condition for USD 200-M investment

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British American Tobacco's local unit is considering a $200 million investment in the Philippines over the next 5 years on one condition: reforms in the sin tax structure are pushed

MANILA, Philippines – A top official of British American Tobacco’s (BAT) local unit said the multinational cigarette retailer is considering a $200 million investment in the Philippines over the next 5 years on one condition: reforms in the sin tax structure are pushed.

BAT Philippines General Manager James Michael Lafferty stressed to local reporters that it current sin tax structure does not promote a level playing field and the reforms now being deliberated in Congress would address that.

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

The Philippine market is one of the main targets of cigarette firms as regulatory and legislative environment is not as restrictive as most markets. Philip Morris has since inked an agreement with the local market leader Fortune Tobacco Manufacturing Corp and together they account for around 94% of total cigarette sales.

BAT, which competes against Philip Morris in other markets including in Indonesia, said the Philippines is an important market for the company.

“The Philippines is an important market to BAT, as with any other multinational corporation who wants to have a strong presence in the Asia Pacific.  We believe that the Philippines is presently on the right track and offers outstanding potential.  It can become one of the biggest economies in the next decade. We want to be part of that growth,” Lafferty said.

Sin taxes

The Aquino government is currently pushing an amendment to the current 4-tiered excise tax structure for sin products. A bill on a single tax structure is currently in the Lower House for deliberation.

The current sentiment is that the new sin tax structure must be passed before the 2013 mid-term polls, when most lawmakers pursue a re-election.

Under the current system, 1996 brands, which cover the brands of Fortune Tobacco, are permanently classified regardless of an increase in net retail prices but post-1996 brands are classified based on current retail prices.

Lafferty expressed optimism that the Aquino administration can pass the crucial legislation.

“There are several means to leveling the playing field and we are supportive of those options. All we want is a chance to fairly compete,” he reiterated.

BAT supports the Finance department-backed House Bill 5727, authored by Cavite Rep. Joseph Emilio Abaya. The measure calls for the adoption of a unitary tax system for tobacco and liquor and indexation of taxes to inflation.

He cited that the merged entity of Philip Morris and Fortune Tobacco Corp. is aided by the sin tax structure.

“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.  Right now what you have is a monopoly.  The historic excise system essentially supports the monopoly.  If there are more players, the stakeholders stand to benefit more,” Lafferty said.

BAT pulled out of the local market four years ago because it said the local cigarette industry was not a level playing field. –

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