A possible fraudulent practice done by some cigarette companies which was uncovered by Rep. Karlo Alexei Nograles (1st district, Davao City) involving the computation and payment of tobacco taxes have prompted the House of Representatives to seek an inquiry into this scheme to help plug excise tax leakages and realize the government’s goal of reducing the harmful habit of smoking among Filipinos.
Nograles, a member of the National Unity Party (NUP), has called the attention of the Bureau of Internal Revenue and Bureau of Customs during a recent hearing at the House about reports of one company that imported seven million kilos of tobacco but paid only .786 million in taxes, compared to another firm that imported one million kilos of tobacco, but shelled out .9 million.
The lawmaker identified the Bulacan-based Mighty Corporation as the firm that was able to pay lower taxes despite importing more tobacco than its counterpart.
“(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,” Nograles said during the hearing.
Nograles’ observations led Rep. Paolo Javier (Lone District, Antique) to seek the inquiry through House Resolution 425, saying questions arose as to how certain cigarette brands can be sold at such low prices despite the tax increases, and whether the government is maximizing the tax revenues when there are reports of massive down-trading from high-priced to low-priced brands.
"There is a need to review the consequences and implications of the recent excise tax increases in view of current market conditions and the proper implementation of Republic Act 10351, otherwise known as An Restructuring The Excise Tax on Alcohol and Tobacco Products of 2012, 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 misdeclaration of cigarette volumes and under or misdeclaration of imported raw materials used in cigarette production," said Javier in his resolution.
At the hearing conducted by the House committee on ways and means, 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.
Javier pointed out that available research and studies show that in June 2013, the smoking incidence was shown to have remained stable at 51 percent, the same level in December 2012, despite the substantial increase in excise taxes and a significant drop in tax paid or legitimate volumes.
RA 10351, which increased excise taxes on low-priced cigarette brands by over 300 percent, was implemented by the BIR starting January this year. From a previous rate of P2.72 per pack, cigarette firms now have to pay P12 in excise tax under the new law for their low-priced brands.
The chairperson of the ways and means committee, Rep. Miro Quimbo (2nd district, Marikina City), assured Nograles and Javier that his panel will get to the bottom of the issue to ensure that the government meets its goals in implementing the new excise tax law.
"There is no such thing as mighty. The mightier they are, the heavier they fall (to the BIR). Sin tax is very close to our hearts. We are spending more than what we can collect. It is important to meet this objective in terms of collection," said Quimbo.