House body seeks review of excise tax law on cigarettes

MANILA, Philippines — The House ways and means committee will review the new sin tax law, which has so far yielded lower than expected revenues and barely reduced the smoking population.

Antique Rep. Paolo Javier blamed the apparent failure of the law to the failure of the Bureau of Customs to check smuggling  of cigarettes and possible cases of mis-declaration that have allowed some brands to continue to sell at low prices.

Javier filed House Resolution 425 to plug a loophole in Republic Act 10351 or “An Act  Restructuring The Excise Tax on Alcohol and Tobacco Products of 2012,” specifically to target what he said was the reportedly fraudulent reporting of volume of tobacco and cigarette withdrawals or importation by some unscrupulous manufacturers — specifically naming Mighty Corp.

“There is a need to review the consequences and implications of the recent excise tax increases in view of current market conditions… to ensure that the objectives and purposes of the law are realized; that tax administration is improved, tax leakages stopped, and that there is proper reporting and monitoring of raw materials used in the manufacture of cigarettes; and that the government is not deprived of its rightful tax revenues from alleged under or mis-declaration of cigarette volumes and  imported raw materials used in cigarette production,” said Javier in a statement.

Javier said he sought a probe of cigarette smuggling after Davao Rep. Karlo Alexei Nograles told a committee hearing last month that Mighty imported 7 million kilos of tobacco and paid only $4.786 million in duties or practically the same as the $4.9 million paid by another cigarette manufacturer for only 1 million kilos of tobacco imports.

Nograles noted the steep surge in Mighty’s market share from 3 percent to 30 percent after the sin tax law was passed as it suspiciously kept its prices low.

Nograles said: “(Is) the company so mighty that it is able to avoid taxes and custom duties?  The reason that we are concerned…is that what we would have wanted to see was not only a decline in cigarette consumption but also an increase in collecting taxes primarily from the BOC. And those were the fears that were locked out during the (sin tax) deliberations—that there would be smuggling,” he said.

During that hearing, Bureau of Customs Commissioner Rozzano Rufino Biazon revealed that his agency has been reviewing Mighty’s import records. “If there are any discrepancies in the company’s payments, it may be required to pay the difference or face other sanctions,” said Biazon during the hearing.

Javier said it was improbable that a cigarette brand would be sold at such a low price despite the stiff hike in taxes. This has led to  “massive down-trading from high-priced to low-priced brands.”

Javier pointed out that when Congress approved the sin tax in December, lawmakers were shown data, which showed that smoking incidence was close to 50 percent among adults. Javier said that smoking increased to 51 percent as of June 2013, which showed that high taxes did not deter smoking as hoped by the lawmakers.

“This phenomenon, wherein smoking incidence is increasing despite the substantial increase in excise taxes and significant drop in tax paid or legitimate volume, can be attributed to the sale and distribution of contraband or illicit cigarettes,” he said.

Meanwhile, the BOC issued in October more than 100 alert orders against suspected illegally imported shipments as the agency beefed up its campaign against smuggling.

Most of the orders were issued “because the declared cargo were believed to be undervalued, mis-classified or mis-declared, if not lacking the necessary permits or bearing unspecified product descriptions.”

Biazon assured he would closely monitor all alert orders to ensure there would no be further delays in the release of legitimate shipments.

The Bureau of Customs has come under increasing fire from various sectors.  President Aquino himself in his State of the Nation Address singled out the BoC as one of the most incompetent agencies. Biazon turned in his resignation but he was apparently told by the President to stay put. An ongoing reorganization has seen the appointment of five new deputy commissioners but all of them were reportedly handpicked by Finance Secretary Alan Purisima.

Biazon brushed off rumors that he and Purisima were at odds.

Asked about the recent appointments, Biazon said: “My attitude is I will work with anyone who’s there, provided that they give me the same respect that I give them and they observe the proper protocols.” With Jerry E. Esplanada