Sin tax law hurts Lucio Tan cigarette firm

MANILA, Philippines – The Lucio Tan group’s cigarette maker has taken a hit from higher “sin” taxes, which, according to a company official, also led to an increase in cigarette smuggling in the country.

LT Group Inc. President Michael Tan, son of Lucio, said they saw lower volume in the first quarter of 2013 following the January implementation of the Sin Tax Reform Law. The law raised excise taxes on tobacco and alcohol products in the country, resulting in higher market prices.

“Tobacco is a big part of our business and since the new excise tax law was introduced our volumes have been impacted. We’re down over 40% (annually) in volume for the first quarter, said Tan following LT Group’s annual stockholders’ meeting Wednesday, June 19.

LT Group is the primary vehicle for the holding and management of the diversified consumer-focused business interests of the Tan family. It is engaged in tobacco, beverage, distilled spirit manufacturing; banking; and property development.

The firm owns Fortune Tobacco Corp., which formed a 50-50 joint venture with Philip Morris Philippines that now holds majority of the local market.

Tan said a bigger concern is the proliferation of illegal cigarettes.

He said illicit trade of the product comes in two forms: smuggling from around the region or manufacturing locally without paying taxes.

He said year to date, the government might have lost P3 billion in revenues due to cigarette smuggling. The amount can go up to P8 billion by year-end.

“Even Fortune cigarettes are being faked. It’s a concern and we would like to reiterate and would like the government to further strengthen its monitoring,” he noted.

According to National Tobacco Administration, tobacco feeds the habit of more than 17 million Filipino smokers, or roughly 20% of the population.

Following the introduction of new sin tax rates, taxes on cigarettes will gradually be raised to P30 per pack by 2017, roughly doubling the average pre-sin tax cigarette price to around P52.

Duty on alcohol will also increase gradually until 2017, increasing the price of a bottle of beer by P23.50, with varying levels for other drinks including wine and spirits. It will be further increased by 4% each year thereafter.

Tan said the government also needs to curb illegal alcohol production.

“We have to watch out for backyard production of alcohol because those aren’t really monitored. In previous times you would get backyard alcohol or liquor being made which are not well made so you get blindness or death,” said Tan.

Ginebra San Miguel Inc, the beverage arm of diversified conglomerate San Miguel Corp, also felt the brunt of new sin tax rates with a 30% drop in sales volume during election season where they would normally anticipate a spike in sales.

“Our beer and hard liquor business, we were greatly affected by the recent tax increase,” said San Miguel President Ramon Ang.

“Usually before the elections, the volume should be very strong. But volume now is not strong due to impact of tax increase,” he added. – Rappler.com