By Amado P. Macasaet
The government has been quietly investigating allegations of massive tax cheating by a low-end cigarette manufacturer but no conclusions have been reached in spite of what appears to be glaring evidence.
The discovery by the Senate Tax Study and Research Office of Mighty Corp.’s alleged practices and the serious concerns raised during a recent hearing called by an oversight committee to look into alleged fraudulent practices of Mighty have not been seriously addressed.
It is in the record and the Bureau of Internal Revenue admits it, Mighty Corp. is selling at a loss obviously to tighten its control over the market. At the same time, however, Might Corp. records confirmed by several government agencies show that the company is paying the correct tax -- on the volume of cigarettes it declares to the BIR.
The company’s most popular brand, Marvel is sold at a loss of P4 per pack but records collated by the industry from two market researches indicate the brand accounts for 91 percent of the company’s total production volume.
Together with two other brands, Marvel represents 99 percent of Mighty’s total sales.
Marvel pays a total tax of P19.3 per pack including the value added tax. Mighty declares its distribution and other costs at P3.2 to the pack. The total costs including taxes amount to P22.4 per pack. The brand is retailed at P18.40 per pack resulting in a loss of P4.10 per pack.
The report of the Senate Tax Study and Research Office states Mighty paid P8.2 billion from removals of 688,289,500 packs for domestic consumption. The report also said Mighty exported 22,139 cases.
This export volume is estimated to be only 1.5 percent of the tobacco it imports for processing into cigarettes and re-exported as required by law.
The cigarettes from imported leaf sold in the domestic market are supposed to be imposed all the taxes. However, Mighty is suspected of not paying the tax.
This and a few more schemes of avoiding tax payments presumably known to the Department of Finance and in fact tolerated by the bureaus of customs and of internal revenue have raised questions on the necessity of government looking more seriously and more deeply into what appears to be blatant violations of customs and internal revenue rules. The price of acetate tow, raw material is also understated as certified by the commercial attaché in the Philippine embassy in Washington DC.
Total sales of other cigarette companies are reported to have declined by about 8 percent. Mighty is selling at a loss of P4 per pack. In other words, there are two losers. One that sells below production cost and the other is the company whose market is slowly being eaten away by a competitor which has so far paid P8 billion in taxes but selling at a loss.
Mighty continues to sell its most famous brand at a loss only to expand its share of demand to around 20 percent although BIR Commissioner Kim Jacinto Henares testified during the hearing by an oversight committee of the House that Mighty’s share of demand is only around 10 percent.
It has been repeatedly reported Mighty pays a consistent price of $0.68 per kilo of imported leaf. The average world price of suppliers to other leaf importers is between $4 and $6 per kilo.
Mighty’s price is clearly indicated in its import entries. Customs does not seem to notice the wide difference between the low price Mighty pays and the prevailing higher prices other tobacco importers pay to the same suppliers.
The investigation into the suspected fraudulent ways Mighty conducts its business has been going on quietly for about 15 months. No government agency is known to have moved against Mighty to whip it into line according to the law.
It is in this sense we dare say the probe of a fraud is itself a fraud.
On Aug. 7, 2014, Maria Roseni Alvero, commercial counsellor of the Philippine embassy in Washington DC, reported to the tax study group of the Senate the prices of cigarette filters by two suppliers “do not accurately reflect their sales of the said product to Mighty Corp. and that they reflect inaccurate harmonized system codes volumes and pricing,”
There seems to be three ways Mighty violates the customs and tariff code and the internal revenue code to avoid payment of the correct tax. The company practically commits technical smuggling when it declares in its import entries the price it pays for imported tobacco is only about 15 percent of world average.
It has been confirmed the company also does not declare the correct price of filter raw materials.
Its record shows it pays remarkably lower prices for local tobacco.
Mighty exports only an estimated 1.5 percent of the tobacco it makes into cigarettes but does not pay the tax on domestic sales as required by law.
The BIR has not examined the capacity utilization of Mighty’s machines to determine whether the volume of cigarettes it declares to the BIR for taxation matches the capacity of the company’s machines.
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email:amadomacasaet@yahoo.com
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