Swiss Challenge eyed for revenue stamp contract on cigarette packs

MANILA, Philippines - The government is eyeing to bid out through the so-called “Swiss Challenge” the contract that would allow a private firm to place revenue stamps on cigarette packs to ensure that manufacturers have paid the appropriate taxes, a ranking Finance official said during the weekend.

Under the Swiss Challenge option, interested firms would be allowed to submit their own proposals that would challenge an unsolicited proposal earlier submitted by a foreign company.

Swiss company Sicpa Holding SA had earlier made an unsolicited proposal to the Department of Finance to provide the service for the Bureau of Internal Revenue’s plan to affix the tamper-proof stamps on cigarette packs.

“Under the system, we will present the proposal of the firm to other companies and if they can provide more efficient and cheaper technology then they will win,” said Finance Undersecretary Gil Beltran.

He said the proposal would have to be approved by authorities before it can be presented to other firms.

Earlier, the BIR’s Pre-Bidding and Awards Committee came out with a report describing Sicpac’s proposal as “meritorious and worthy of government support,” despite Sicpa’s questionable financial capability.

Under Sicpa’s proposal, stamps shall be affixed on each pack of domestically produced cigars and cigarettes. The project consists of a track and trace system which combines proprietary security and tracking technologies for a complete and integrated security solution for anti-counterfeiting, production monitoring, distribution control and inventory taking for tax administration purposes.

The project, with a pre-operation and operational cost of P12.16 billion would be implemented for a period of seven years. It is projected to raise P13 billion in revenues for Sicpa every year.

However, Sicpa’s equity in the project amounts to only P56.35 million as against the project’s initial investment cost of P2 billion.

The National Economic and Development Authority (NEDA) said as a rule of thumb, the minimum equity should be one third of its debt. This means that the maximum debt-to-equity ratio should be 75 to 25 to avoid over-leverage and to ensure that the project’s financial capacity for debt repayment or other investment activities will not be at stake.

Under Republic Act 8240, which took effect in 1997, the government is required to incorporate the revenue stamps to the design of the cigarette packs themselves as this would curb smuggling and plug tax leakages. The permanent stamps would replace the easily detachable stickers presently placed on cigarette packs. But the BIR until now has yet to come up with the guidelines on the affixing of the stamps.

Beltran said the BIR has yet to decide when it would bid out the contract.