BIR may lock out cigarette firms in stamp tax project

MANILA, Philippines - The Bureau of Internal Revenue (BIR), the government’s main revenue agency, is eyeing to bid out its stamp tax project within the year, but will not allow cigarette firms such as PMFTC to participate in the bidding.

BIR commissioner Kim Henares said the agency is now preparing the terms of reference for the bidding of the service contract.

“It will be within the year,” she said.

However, she said that because of possible conflict of interest, the BIR would not allow cigarette companies to participate in the bidding.

Under Republic Act 8240, the law which amended sections of the National Internal Revenue Code and which took effect in 1997, the government is required to incorporate the revenue stamps on 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.

However, through the years, the tax agency has not been able to find a suitable service provider for the project. Previous administrations entered into negotiated bidding but this attracted controversy.

Sicpa, a Switzerland-based company, has found itself the subject of scrutiny by lawmakers, as its proposal would allegedly raise the prices of cigarettes.

Under Sicpa’s unsolicited 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 the company every year.

However, Sicpa’s proposal became controversial because its planned 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 said that 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 would not be at stake.

PMFTC Inc. the joint entity of American tobacco firm Philip Morris and Fortune Tobacco Inc. of the Lucio Tan Group., also submitted an unsolicited proposal for the BIR’s project but this did not materialize as well.

Under PMFTC’s proposal, the government would have complete control over the proposed system dubbed as Codentify.

Under the plan, the government would use a digital marking technology. A third-party independent system provider would install the security equipment in government premises, provide the necessary training and support, and help the government audit the system once installed in the cigarette factories.