Speaker Belmont hits BIR silence on Mighty tobacco taxes

MANILA, Philippines–Speaker Feliciano Belmonte Jr. has questioned the “deafening silence” of the Bureau of Internal Revenue (BIR)on Mighty Corp.’s alleged fraudulent practices to evade hundreds of millions of pesos in tax and duty payments that its rivals claim have allowed it to corner a quarter of the cigarette market in such a short time.

Belmonte said he would not allow a company like Mighty to sabotage Congress’ decade-long efforts to extract more revenues from cigarette and alcoholic drinks.

“I have to ask the oversight committee to give me a report on Mighty’s operations. It’s really a BIR affair but we have not been hearing about this. Their silence is really deafening,” Belmonte said at the weekly “Ugnayan sa Batasan” press conference.

Suddenly a big company

Belmonte has ordered the commissioning of a legislative oversight panel as provided under Republic Act No. 10351, also known as “An Act Restructuring the Excise Tax on Alcohol and Tobacco Product,” to look into whether private companies were paying the right taxes; whether government agencies such as the BIR and Bureau of Customs were collecting the proper taxes and duties; and whether the sin tax collections were being used for the designated beneficiaries, specifically the Department of Health’s universal healthcare program.

Belmonte noted that the BIR had been asked by some cigarette manufacturers to look into tax evasion charges against Mighty but he was wondering why no inquiry had yet been made.

“Congress might as well find out why all of a sudden Mighty has become a big company,” said Belmonte who revealed his doubts about Mighty’s tax payments. “Somebody has been questioning about sin taxes which should really be looked into.”

Philip Morris cited a study by a congressional think tank, the Senate Tax Study and Research Office (STSRO), which pinpointed ways on how Mighty was evading tax payments to the government to undercut its rival cigarette makers.

The STSRO found Mighty, the country’s oldest cigarette manufacturer, culpable of diverting its cigarette output meant for export to the domestic market without paying the right customs duties and taxes on the imported materials used for these products.

Mighty declared that 99 percent of its imported materials were used for exports with only 1 percent sold in the domestic market. STSRO claimed that Mighty actually exported only 1 percent of its cigarettes made from imported materials.

Half the price

The research office also noted that Mighty was able to sell its cigarettes for only P1 per stick, or half the price of competing brands.

It also noted that while Mighty was able to build its market share beyond 20 percent, it only accounted for a 13-percent share of the industry’s total tax payments.

Belmonte said that he was personally disappointed with these findings considering that he used to work for the Bureau of Customs (BOC).

“Why do we let these companies operate in gross violation of our rules? We should ask BIR and Mighty to explain in Congress,” he said.

Call for probe

Belmonte was also disappointed that the House ways and means committee had not acted on a resolution calling for a probe of allegations made by Philip Morris’ in full page ads in broadsheets and tabloids regarding the glaring tax deficiencies and export data of Mighty.

The resolution was filed by Cagayan de Oro Rep. Rufus Rodriguez and his brother, Abante Mindanao Rep. Maximo Rodriguez.

The Rodriguez brothers and Ang Nars Rep. Leah Paquiz have questioned the government’s failure to generate the targeted revenues from the sin taxes that resulted in funding shortfalls in the Department of Health (DOH) universal healthcare program.

“After its enactment two years ago, many Filipinos are still not covered by the universal healthcare program of the government and many cities and provinces are still without public clinics and hospitals,” said the Rodriguez brothers in their resolution.

Not a single illicit trade practices-related case has been filed against Mighty almost a year after a Department of Finance (DOF) task force questioned it for alleged technical smuggling and tax evasion that resulted in huge revenue losses for the government.

However, a BOC administrative order, issued in January and suspending the firm’s customs bonded warehouse operations remains in force, noted the DOF-attached agency.

The move was necessary to “prevent revenue leakages while a further investigation (of the company’s trade practices) was being conducted” by the finance department, Customs Commissioner John Phillip Sevilla earlier said.

The daily monitoring by a BIR team of Mighty’s manufacturing and processing plant in Malolos, Bulacan province, also continues.

P1B in duties, taxes

The finance department has required the firm to pay nearly P1 billion in customs duties and taxes for the importation of raw cigarette materials.

“Despite the fines imposed on Mighty Corp., it was neither blacklisted nor prevented from importing tobacco leaves and other cigarette-production materials,” a BOC official earlier said.

Oscar Barrientos, Mighty Corp.’s executive vice president, has acknowledged that the company paid “an initial P854 million and an additional P124 million (or a total of P978 million) for the duties and taxes of our imports.”

“Government records will also show that we have paid the corresponding taxes. That is why the BIR never charged us with tax evasion because we paid the right taxes,” Barrientos was quoted as saying in an Inquirer report last month.

‘Business as usual’

He noted that the BOC suspension order did not cover Mighty’s regular importation for the domestic market.

“Nothing has changed. It’s still business as usual. We will continue to cooperate with the authorities… We have been transparent with the Bureau of Customs and we will continue to be transparent,” Barrientos said.

Customs personnel said the order would compel the firm to declare every single imported item it would use in the production of cigarettes for domestic consumption and pay the appropriate duties and taxes.