Sicpa can't guarantee revenue gain

MANILA, Philippines - The Swiss company that the Bureau of Internal Revenue (BIR) wants to engage for P18 billion to plug alleged tax leakages in the tobacco industry can’t guarantee that its engagement would result in an increase in revenues.

Director Hans Schwab of Sicpa Security Products has told the House ways and means committee that several countries where they presently have similar contracts are happy with their services.

“The benefits to their governments far exceed the costs,” he said.

As a result, he said Malaysia had given Sicpa a three-year extension of its contract and is set to renew it again.

Representatives Danilo Suarez of Quezon and Edcel Lagman of Albay told Schwab that if his company’s contracts were indeed beneficial to the contracting governments, then it should be prepared to accept an arrangement where it would be paid if it could bring in increased revenues.

“I am suggesting that your payment would depend on your performance. In other words, no gain, no pay,” Suarez said.

Lagman said if Schwab’s statement that the benefits of their contracts are far greater than the costs, then its payment should be tied to revenue gain.

Shcwab frowned upon the congressmen’s suggestion, telling them, “That is a difficult proposition, your honors.”

He said his company could not afford to take such risk since it “will assume the entire cost of investment.”

Sicpa is offering to install high-tech strip stamps on every pack of cigarettes to monitor production and tax payments, and to prevent smuggling and counterfeiting, which result in revenue losses.

It is similar to the equally controversial radio frequency identification (RFID) project of the Land Transportation Office.

In earlier testimony, BIR Deputy Commissioner Lilia Guillermo told the ways and means committee that the estimated revenue gain from Sicpa’s proposal is P29 billion over a seven-year period.

Of that amount, P18 billion would be paid to the Swiss contractor, leaving the government with a “net gain” of P11 billion.

She said the government would not pay anything for the stamps and other equipment needed since the cost would be charged to cigarette manufacturers.

This has prompted cigarette producers to raise a howl of protest.

Chris Nelson of Philip Morris said though the cost would be initially borne by manufacturers, it would eventually be passed on to consumers.

“This translates to around P.50-P1 increase in cost per pack across the board for all brands – an amount higher than the excise tax increases in 2007, 2009 and 2011 for low, medium and high tax categories,” he said.

He said for Philip Morris, the cost of the stamps and the technology would be “around P564 million to P1.1 billion a year.”

“For our bigger competitor, Fortune Tobacco, the figure is between P1.6 billion and P3.2 billion a year,” he added.

Susan Resurreccion of La Suerte said at present, the BIR assigns personnel in the plants of cigarette makers to monitor “removals” or product withdrawals.

“I couldn’t believe that the BIR does not trust its own personnel and seeks the help of a Swiss company to improve its efficiency at the expense of manufacturers,” she said.

Other congressmen suggested that the House might as well increase excise tax rates on cigarettes and other “sin” products so that the entire revenue gain would go to the government instead of the bulk of it going to a private contractor.