Philippines: PMFTC''s Bid to Make Cheap Variants Puzzles BIR Officials

Source from:  Manila Bulletin  12/20/2013

Excise tax officials of the Bureau of Internal Revenue (BIR) were surprised and puzzled over the request of the Philip Morris Fortune Tobacco Corporation (PMFTC) to produce four variants of its Marlboro brand and sale them at low prices to compete effectively with cigarettes produced by Mighty Corporation (MC).

Revenue officials and even industry observers said there was no need for PMFTC to make such application as it also manufactures low-priced brands like Fortune, Champion and Jackpot that were previously owned by Fortune Tobacco before it merged with Philip Morris to form PMFTC more than two years ago.

They said that the two cigarette companies are not only the ones selling P1 per stick as there are other local and imported brands which sell for less than P1 per stick.

PMFTC submitted its petition to the BIR's large taxpayer Service (LTS) two weeks ago to arrest the decline of Marlboro sale because many low-income smokers like laborers and drivers of public utility vehicles have been shifting to low-priced MC brands.

PMFTC admitted that its production of Marlboro has gone down from 92 billion sticks in 2012 to about 68 billion this year.

"It is critical for our company that we secure the approval of the (BIR) for our request to register Marlboro Original, Marlboro Gold Lights, Marlboro Menthol, and Marlboro Black Menthol" in the low price category, PMFTC President Paul Riley said in a letter to BIR Assistant Commissioner Alfredo V. Masajon, head of the Large Taxpayers Service.

Riley admitted in his letter to the BIR that the company's production volume had been dropping from "92 billion sticks in 2012 to 68 billion this year. "

"By next year our volume will be 48 billion sticks. This is why we need to do something to reverse the current trend," he said.

"What is more worrying, we expect the down-trading to continue, with the Marlboro volume further decreasing to 7.9 billion sticks in 2014," Riley added.

PMFTC blamed downtrading of consumers – switching of brands by smokers to lower priced cigarettes – for the drop in its production and sales.

The PMFTC executive said the "continued viability of one of our factories and... the employment of over 1,000 employees" were at stake.

"To prevent this dire development, the company is willing to significantly cut its margins by introducing new Marlboro products with Net Retail Selling Prices (NRSPs) of below P11.50/pack. The company is hoping to get an additional volume of 8.9 billion sticks in 2014 which, in turn, can help the BIR collect more revenues from cigarettes," Riley said.

He clarified, however, that PMFTC would still maintain its original Marlboro products in the premium category. Riley also said they will not produce their flagship brand, Philip Morris, in the low price category.

If its petition is approved, PMFTC said, it will be producing additional 8.9 billion sticks next year, thus increasing the tax take of the BIR and saving the jobs of its 1,000 workers.

The new Marlboro products are named Malrboro Original, Marlboro Gold Lights, Marlboro Menthol and Marlboro Black Menthol.

Earlier, BIR Commissioner Kim S. Jacinto-Henares confirmed the decline in the sale of PMFTC due to the sin tax law (RA 10351) which imposed higher excise tax rate on high-priced premium brands like Marlboro. The excise tax rates are P25 for cigarette pack in 20 sticks and retailed at P11.50 and up. For lower amount the tax is P12 .

The BIR chief said the high tax rate was imposed "to level the playing field" and discourage the habit of smoking, thus minizing the incidence of smoke-related illnesses. The Philippine is the second biggest tobacco market in Asia after Indonesia, with more than 50 million smokers according to a study conducted early this year by the Harvard School of Public Health. Enditem