Mighty Tobacco probed for selling cheap cigarettes

MANILA, Philippines – Cigarette manufacturers in the Philippines have urged the Bureau of Internal Revenue (BIR) to probe into local player Mighty Tobacco Corporation's alleged under-declaration of products meant to reduce sin tax payments. 

Mighty manufactures and sells cigarettes retailed at P1 per stick, which categorized the products under the low-end tier subject to the cheapest sin tax rate.  

The government's ongoing investigation of the allegations of under-declaration by Mighty was based on complaints from "industry sources."

Capturing about 90% industry share is Phillip Morris Fortune Tobacco Company (PMFTC), which is jointly controlled by one of the world's biggest cigarette firms and the group of local tycoon Lucio Tan. 

PMFTC sells its products at about P5 apiece, way more than Mighty's.

No foreign owner

The Filipino cigarette firm denied the allegations and alluded to the industry leader, in which multinational firm Philip Morris has a stake. 

Mighty's legal counsel Miguelito Ocampo said: “While our company cannot comment on how other cigarette companies price their cigarettes, what we can say is that our company can sell one-peso-per stick cigarettes because... Mighty does not pay royalty fees to foreign companies for the use of our brands of cigarettes.”

Ocampo also stressed that Mighty incur relatively lower overhead and production costs because it sources its services, management and materials locally.

Mighty, he added, is not the only brand that sells cigarettes for P1 each.

Reformed sin tax law

Under-declaration of every 1-billion cigarette sticks can cost the government P600 million in excise taxes.

Republic Act No. 10351 or the restructured sin tax law, which caused price inflation in cigarettes and booze, was put in effect to generate additional revenues of roughly P34 billion in 2013, the first year of the reform law's implementation. The excise taxes will be spent for the universal healthcare program and tobacco farmers' livelihood.

Some smokers, however, resorted to cheaper, one-peso-per-stick brands after the reform law was implemented in January 2013. (READ: Higher booze, cigarette prices as sin tax law takes effect)

About 25% of sub- and premium smokers switched to lower-end brands, industry estimates showed.

The reform law seems to have failed to curb local consumption. Instead, sticks sold per smoker increased to 14.13 in the second quarter from 13.53 in the first. (READ: PH lags behind in health promotion)

The law's enactment has also given rise to the possibility of smuggling tobacco products, which has already been spelling loss for the major players, especially those that sell higher than P1 per stick. - Rappler.com