Tobacco News and Interesting Information

FINANCE Secretary Margarito Teves said he was willing to order a review of a move to lower the excise tax on Pall Mall cigarettes of British American Tobacco (BAT).

"[The Department of Finance] may order a review of the lowering of the tax if anyone will make an appeal on the decision," Teves said.

The finance chief said the move to cut the excise tax on Pall Mall, from P26 to P6 per pack, was based on a recommendation by the Bureau of Internal Revenue, under then Revenue Commissioner Jose Mario Buñag.

The DoF approved the tax cut upon the endorsement of finance undersecretary Gaudencio Mendoza Jr., head of the DoF legal team.

Pall Mall was recently revived in the local market by British Americal Tobacco. Under the law, old cigarette brands are charged lower excise tax rates.

A provision in the National Internal Revenue Code of 1997 contains the cigarette brands and the corresponding tax rates. Brands that came out after the Tax Code was put in place, or the so-called new brands, are covered by tax rates based on current market prices.

BAT won the endorsement of the BIR by insisting that it was an old brand and, therefore, should not be subject to the higher excise tax of P26 per pack.

The decision of the BIR to lower the excise tax on Pall Mall to only P6 per pack, however, caught the attention of Congress.

Rep. Exequiel Javier of Antique was quoted in reports as saying he would call for a review of the excise tax rates on cigarettes and the way revenue authorities implement the excise tax law.

Critics said the country's system of taxing cigarettes was flawed since it favored old brands. Although the government in 2005 passed the Sin Tax Law, which mandated an increase in the excise tax rates, it did not address the inequality in taxation between old and new brands, as the latter are still charged higher rates.

The Sin Tax Law has been unable to meet the government's target of raising its revenue collection from cigarette and alcohol manufacturers through the imposition of higher tax rates.

The excise tax collection of the BIR reached only P24.49 billion in the first half, 14.7-percent lower than year-ago's P28.72 billion.

The latest excise tax collection figure also fell short by 2 percent of the P26.42-billion target for the six-month period.

Although the decline was partly attributed to the shift in consumers' preference to cheaper cigarettes, the BIR said it could also be due to the underdeclaration of production by manufacturers.

Excise taxes should be paid before the products are taken out of factories. Products whose taxes have already been paid are marked by tax personnel with a seal.

But Revenue Deputy Commissioner Nelson Aspe earlier said some cigarette makers were suspected to be using fake seals just to avoid paying the proper taxes.

This is why the BIR is preparing an improved system of auditing the tax compliance of cigarette makers, he said.