Philippines: LT Group Claims Losing 40% in Tobacco Sales to Illicit Cigarettes

Source from:  GMA News 06/20/2013

LT Group Inc. is pushing for a stricter monitoring of illicit cigarettes, claiming that smuggled as well was untaxed cigarettes are the main reasons why the company's sales dropped by 40 percent in volume during the first quarter amid the reformed sin tax law implemented starting this year.

"Our main concern is the tobacco business," president Michael Tan, told reporters after the company's stockholders' meeting in Taguig City's Global City.

"There was a significant rise in excise tax beginning January 1 this year. Our volumes have been impacted. We have also seen the rise of illicit cigarettes," Tan noted.

On January 1, the Bureau of Internal Revenue imposed higher excise taxes on tobacco and alcohol products. President Benigno Aquino III signed into law Republic Act No. 1035 or the Sin Tax Reform Law last Dec. 20.

However, trade in illegal cigarettes is a "primary concern" as there have been improvements in sales volume despite the higher excise tax on tobacco and alcohol products, according to the LT Group chief.

"We're down by over 40 percent in volume since the beginning of the year, but we have seen sequential improvements month-on-month. Illicit trade is one primary concern. We've seen in the region the proliferation of illicit cigarettes," he added.

The company official noted the contraband comes in two forms—smuggled from around the region and locally manufactured but not tax-paid.

"We've seen action from the government and we're working hand-in-hand with them in these activities. But again it's a concern and we're calling government to further strengthen the monitoring of the increase in illicit cigarettes," Tan said.

Apart from impacting on the sales of legitimate businesses, he noted the rise of illegal tobacco products in the country erodes government revenues by about P8 billion a year.

"Year-to-date, that's about P3 billion lost to illegal cigarettes. To put it in perspective, that's equivalent to 30,000 to 35,000 classrooms on an annualized basis," he noted.

LT Group's tobacco business is under PMFTC Inc., with unit Fortune Tobacco Corporation owning 49.6 percent with Philip Morris Philippines Manufacturing Inc. holding a 51.4 percent equity interest in the joint venture.

PMFTC is licensed to use the brands Marlboro and Philip Morris, and Fortune, Hope, More, Winston and Champion.

In an AFP report, the National Tobacco Administration said the industry targets to expand to 84,000 tons of tobacco this year, up by 13 percent from last year.

The regulator agency also said the industry feeds the habit of more than 17 million Filipino smokers, or roughly 20 percent of the population, yielding nearly $700 million in annual tax revenues, of which 15 percent, or $140 million a year, are returned to the areas that plant them. Enditem