PMFTC to gov’t: Plug leaks in sin tax collections

MANILA, Philippines – The full weight of the law must be enforced to ensure that all cigarette companies are paying the right amount of excise taxes, cigarette manufacturer Philip Morris Fortune Tobacco Corporation (PMFTC) said.

Before the government considers another hike in excise tax on cigarettes, it must first plug the leakages in sin tax collections, PMFTC president Paul Riley said in a press briefing on Friday, October 24.

“The government must make sure that everyone pays the right excise taxes because that fixes everything. Fix the problems first,” Riley said.

PMFTC also released the key findings of the Senate Tax Study and Research Office (STSRO), which confirms that Mighty Corporation’s business practices may have adversely impacted government revenues.

The Bureau of Internal Revenue (BIR) is looking into the tax payments of local cigarette company Mighty Corporation following the P852.9 million ($19.04 million*) payment demanded by the Bureau of Customs (BOC) for the importation of raw cigarette materials.

Mighty was also noted to be liable for non-payment of P4.42 billion ($98.68 million) in excise taxes by the Department of Finance (DOF) on top of the amount demanded by the BOC. (READ: Mighty Corp tax payments under BIR scrutiny)

Riley said that the report was presented and discussed in Congress and that they concurred with the observations made by a member of the joint committee that “this is a clear case of fraud.”

“The findings may just be the tip of the iceberg,” Riley said.

The STSRO uncovered several pieces of evidence that shed light on Mighty’s ability to sell all their products below tax and cost for almost 18 months now, while still enabling them to stay afloat, Riley added.

‘Fraudulent’ activities

The STSRO report indicates that Mighty may have been involved in fraudulent activities.

Mighty uses imported materials to make cigarettes for export but diverts them to the domestic market without paying duties and taxes, the report revealed.

The company also undervalues the cost of tobacco and filter imports to evade customs duties and import value added tax (VAT), the report added.

PMFTC said it was noted in the STSRO report that 99% of Mighty’s importation of tobacco leaf and cigarette filter materials were declared for use in the manufacture of cigarettes for export only and virtually none for domestic use.

PMFTC said Mighty itself had admitted to exporting only 1.5% of its total production.

The report also highlighted the underpricing of Mighty’s imports of filter material with at least two US -based suppliers confirming that they sold to Mighty Corporation at a much higher price than what was declared with the BOC, PMFTC added.

Mighty declared import prices for filter materials between $0.36 and $0.40 per kilo. The US suppliers certified to the Department of Trade and Industry that they sold the filter materials from $5.35 to $6.70 per kilo.

Mighty imported Virginia tobacco leaf from $0.68 to $0.77 per kilo while the other importers declared between $4 and $6 per kilo.

Burley tobacco at $0.68 per kilo was also imported by Mighty, while the others paid $3.50 to $7 per kilo.

“While the government padlocked Mighty’s warehouse and assessed them with additional taxes for its 2013 imports, the report presents new convincing evidence that highlight what was pointed out by a member of Congress as ‘systematic and endemic fraud,'” PMFTC said.

The report also showed that the “‘questionable” business practices employed by Mighty have been occurring as early as 2005.

The findings about Mighty deserves more careful scrutiny as it could likely merit wider and stricter enforcement action by the government, PMFTC said.

“In light of the findings of the STSRO, we believe that the relevant government agencies will not hesitate to enforce the full weight of the law to achieve the government’s goal for everyone to pay the right taxes,” Riley said. – Rappler.com

*$1 = P44.79