Ducky Paredes

“Crushing vehicles could possibly teach the car smugglers a lesson; but how does one teach a Finance Undersecretary and the lawyer-father of a top finance official their proper lessons?”

by Ducky Paredes

My source at the Bureau of Internal Revenue (BIR) says that tax personnel are shocked over the open lobbying and influence peddling that the lawyer-father of a top finance official is doing for La Suerte Cigar and Cigarette Company, the local manufacturer of the imported cigarette brand Pall Mall.
Apparently, the pressure applied by the official’s father is the reason for the reversal by the Department of Finance of a final BIR ruling, which slapped an excise tax of P26 per pack of Pall Mall manufactured and sold in the Philippines.
It was an Undersecretary of the Department of Finance (DOF) who reversed the BIR ruling issued only last Feb. 22 this year by then BIR Commissioner Jose Mario Bunag. And, imagine this: It was the same DOF Undersecretary himself who initially pegged the proper excise tax on Pall Mall, which was used by the BIR in coming up with the figure of P26 per pack.
While the BIR is under pressure by the DOF to produce more collections, a stroke of the pen by a Finance Undersecretary will cause the bureau to lose at least P93 million this year from the change in the ruling on the proper tax on Pall Mall cigarettes. The reversal of the Bunag ruling means that the old excise tax of P6.35 per pack of Pall Mall (which Bunag felt was improper since Pall Malls have always been taxed at P26 per pack) is now again in effect. This translates to a loss to the BIR and the government of P20 for every pack of the locally manufactured imported cigarette brand.
The reversal of the Bunag ruling means that the local manufacturer of Pall Mall, La Suerte Cigar and Cigarette Company, will be able to continue selling Pall Mall at P14 per pack.
Under our laws, for a completely new cigarette brand, the manufacturer is allowed to set his own price and to set the excise tax on this subject to a review by government authorities. La Suerte set their price for Pall Mall (a brand that is internationally recognized) at P14 including the P6.35 excise tax it set for its own brand.
Bunag found out, however, that imported Pall Mals were selling at P89 per pack and had an excise tax of P26. So, Bunag set the excise tax at P26, which is what the tax code prescribes. Now, of course, Bunag has been mysteriously eased out and La Suerte’s position vis-à-vis our tax-collecting agency has improved immensely.
All that La Suerte has to do is to continue selling Pall Malls at its much-reduced price of P14 per pack for a period of 18 months after which its excise tax of P6.35 will become the brand’s permanent excise tax! Imagine how much of an advantage Pall Malls will have in the local market when it can pay a tax of P6.35 when its competitors of similar international brands will be paying P26 per pack and more.
Then, even when La Suerte increases the price of Pall Malls to over P50 per pack, its tax will continue at P6.35! What a steal!
Before the mysterious reversal, the DOF and the BIR were in agreement that Pall Mall, whether imported or locally produced, should be levied an excise tax of at least P25 as a newly introduced brand in the local market.
The basis of this ruling was Revenue Regulation No.3-2006, which states that taxes charged on the subsequent importation or manufacture of a new brand of cigarettes should not be lower than the taxes collected from the same brand as sold in duty free shops in the Philippines. Imported Pall Malls used to sell at P85 per pack at local duty free shops, inclusive of the P25 excise tax.
The BIR took into account this P85 selling price of imported Pall Malls and the P25 excise tax in pegging the excise tax on Pall Malls manufactured by La Suerte at P26. The BIR only followed Revenue Regulation 3-2006 to the letter in ruling this way, thus the questions being raised on the Finance Undersecretary’s turnabout.
By the way, the imported and locally produced Pall Malls are almost exactly the same, so much so that an aficionado of the brand would have a hard time distinguishing between the imported and local versions in terms of taste and packaging, among other things.
The trade mark licensing agreement between La Suerte and Pall Mall originator British American Tobacco (BAT) made sure of this, stating that, save for the place of manufacture, the locally produced Pall Malls should be identical with imported ones.
Shouldn’t President Arroyo be finding out why the government, through an order of the DOF, has given up P93 million a year in excise taxes, at a time when it is hard-pressed to narrow down the budget deficit through improved tax collection efforts?
If we crush the cars brought in by smugglers whose only real violation is that of avoiding the payment of he right taxes, what should we do with the DOF personnel who cause us to lose tax payments by the stroke of their pen? Should Pall Malls be confiscated and burned or should it be the DOF officials who should be held responsible for doing to the government something worse than any smuggler has ever done.
In a few more months, unless someone in the BIR or the DOF acts soon, the lower excise tax on Pall Malls becomes permanent! Then, it will be too late to do anything about this. Crushing vehicles could possibly teach the car smugglers a lesson; but how does one teach a Finance Undersecretary and the lawyer-father of a top finance official their proper lessons?
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hvp (08.22.07)