Philippine: Tobacco Industry Benefiting from Tax Stamps

Source from:  Manila Bulletin 02/25/2015

The implementation of the tax stamp on cigarettes and ensuing government actions are now showing some positive results for the domestic tobacco industry, Marlboro cigarette-maker Philip Morris International (PMI) Inc. said.

During the recent Consumer Analyst Group of New York conference, Jacek Olczak, PMI chief financial officer said the situation in the Philippines is now "getting better," particularly at the bottom end of the market.

Cigarettes brands that belong to low-tier category are PMFTC's Fortune and Jackpot.

"I mentioned Philippines, the situation is getting better at the bottom end of the market, I think the tax sticker implementation and other government reenforcement actions are bringing in the results," Olczak said.

In the last quarter of 2014, the Bureau of Internal Revenue (BIR) implemented the tax stamp on cigarettes, or Internal Revenue Stamp Integrated System (IRSIS) that aims to capture the illicit cigarette trade in the local market.

PMI's local unit Philip Morris Fortune Tobacco Corp. (PMFTC) Inc. had accused homegrown cigarette manufacturer Mighty Corp. of tax under-declaration after the Bulacan-based firm managed to keep its prices low despite higher excise tax rates. Mighty has repeatedly denied the allegations by PMFTC.

But starting this year, Olczak noted that the situation in the Philippine market has positively changed after Mighty raised its prices for several times since November last year.

"The price gaps in Philippines have significantly closed from the level, say, two months, three months [ago]," Olczak said. "Once we are comfortable with the price gap, [it] creates, opens some better pricing opportunity."

"I can't talk about our future pricing moves but once we've recovered from that situation [huge price gaps], I think we can look more positively on the Philippines," he added.

Meanwhile, Olczak said said cigarette consumption in the Philippines has remained resilient, while the company's production volume has remained stable.

"The biggest drag which we had last year clearly was coming from the Philippines. It was a hard work year for us, but we are very pleased with what we have achieved and at the time we finished 2014, we're at a much better shape," Olczak said.

Earlier, Andre Calantzopoulos, PMI chief executive, said the price movement at the lower end of the market was a positive development for PMFTC.

"After we raised the recommended stick price of Jackpot from P1.25 to P1.5 in October, our main competitor increased the recommended stick prices of its brands by P0.25 in December and further increases have occurred since then," Calantzopoulos

The PMI chief said the price adjustment made by rival Mighty reduced the stick price gap to Marlboro from P1.75 in January last year to between P1 and P1.25 currently.

"The price of per stick now of every brand that counts is at P2 or about, [hence] our price gaps are reducing. The Philippines is definitely is not going to be of any negativity and if any, we will turn positive this year," Calantzopoulos said.

"I feel better now than six-months or three-months ago," he added.