Philippines: Mighty Shuts down for 3 Months

Source from:  Malaya 03/21/2014

Mighty Corp., the 70-year old cigarette maker whose sales zoomed despite a punishing excise tax, has temporarily halted operations of its huge plant in Malolos, Bulacan.
 
Step by painful step it decided to shut down the plant last March 10, Monday, to resume operations after three months.

 
It twice stopped plant operations last month, the first on  Feb. 12. A week later, or Feb. 19, the company announced resumption of operations.  Again on Feb. 27, Thursday,  the company declared a work holiday for 200 casual employees and 20 trainees.

It twice stopped plant operations last month, the first on  Feb. 12. A week later, or Feb. 19, the company announced resumption of operations.  Again on Feb. 27, Thursday,  the company declared a work holiday for 200 casual employees and 20 trainees.
 
Finally, on March 10, Mighty declared a total shutdown but made clear it would resume operations  May this year.
 
The wishy-washy way that attended the decision to suspend operations is variously interpreted to mean that the company has accumulated enough inventory to last until May.  This inventory is claimed not to have been declared to the BIR and therefore not taxed.
 
Other leaders in the cigarette industry suspect that Mighty has run out of imported leaf to make cigarettes from.  However, another leader said this is not likely considering that Mighty asked for almost 300 per cent increase in tobacco imports declared at 85 per cent less than world price.
 
Finance Secretary Cesar Purisima himself suspects that Mighty may be exporting smaller volumes of cigarettes than the equivalent of its cheap tobacco imports.
 
Therefore, the source said, it is not likely Mighty has run out of raw materials.  He recalled that the company pays only 30 per cent of the average price of local tobacco.  The records show that its local and imported tobacco purchases last year were much bigger than the year before or the time when the tax on brands was less than P3 per pack.  Its share of the market then did not move from three per cent.
 
At the present tax rate of P12 per pack to be increased to a uniform P30 per pack by 2017, Mighty's share of demand soared to 30 per cent.
 
There have been reports that the company was losing P4 per pack.  Purisima suspected that the "loss" is covered by the value of cigarettes Mighty does not declare to the BIR for taxation.
 
Purisima ordered an investigation  but neither the bureau of customs which should look into allaged under pricing of imported tobacco as a form of smuggling nor  the BIR which should investigate whether or not Mighty was declaring to the BIR all of its production, complied with Purisima's order. 
 
There is speculation in the market that the suspension of work was made out of fear of  the BIR which might have threatened the company with a thorough investigation.
 
This possibility is considered most remote in the face of the fact that BIR Commissioner Kim Jacinto Henares came to the defense of Mighty when she declared that the leaders of the cigarette industry who informed her of the company's possible violation of tax laws, had better prove their charges.
 
Otherwise, she said, they could be sued by Mighty for libel.  Mighty, on the other hand, did not lift a finger about being accused of cheating on taxes.
 
There are reports that Mighty declares only 40 per cent of its production to the BIR for taxation.  If that were so, the company does not pay taxes on 60 per cent of its production.
 
The speculation in the market is Mighty has accumulated a huge inventory that can last for three months even when operations are shut down.
 
It would be recalled that Mighty was reportedly fined $27 million in three states of the United States for refusing to contribute a part of its sales in the US to a health fund for victims of the tobacco habit.
 
A congresswoman from Nueva Ecija, seeking information of the alleged violation from the US Ambassador to Manila, said Mighty could be liable for as much as P27 billion if it declares all of its production to the BIR.
 
The Philippine government did not feel embarrassed about the alleged violations.  Neither has it investigated reports that Mighty's capacity is too large compared to the volume declared for taxation.
 
Observers said the three months suspension of operations might have been resorted to by Mighty to escape the heat.  But there is no heat precisely because the BIR refuses to investigate reports that Mighty is cheating on taxes. Enditem