BIR won’t reclassify premium cigarets to low-tier brands

MANILA, Philippines - The Bureau of Internal Revenue has thumbed down a proposal to reclassify premium brands to low tier cigarettes.

Informed sources said the BIR has rejected Philip Morris Fortune Tobacco Corp.’s plan to introduce low-priced Marlboro cigarettes in the domestic market as this would be in conflict with the sin tax reform law, which sets a two-tier system for cigarette products.  Marlboro is classified as a premium brand under the sin tax measure.

Excise tax on low priced brands is P12 per pack while that on the higher tier is P25/pack.

Sought for comment, BIR commissioner Kim Henares neither confirmed nor denied the report but pointed out that the law must always prevail.

“I can not make any comment at this point. Rest assured we will always follow the law,” Henares said in a text message.

PMFTC, the joint venture between taipan Lucio Tan and American tobacco giant Philip Morris International, made the proposal following stagnating sales as consumers switch from premium to super cheap cigarettes.

It lost a bit of control over a market it once dominated completely due to intense competition from bargain brands like Mighty which sells cigarettes for P1 per stick.  This triggered a price war that dented the bottom-line and topline of PMFTC.

Last year, low-priced cigarettes accounted for only five percent of the country’s 100-billion cigarette sticks  industry, estimated to be worth around  P150 billion. Studies show that while bargain brands have started to make their presence felt in the industry, Marlboro remains the dominant brand in the sector.

However, the new six tax law provides for a unitary tax regime of P30 per pack of cigarettes by 2017. This is to simplify the current multi-tiered structure, prevent downshifting to lower priced brands, discourage consumption of sin products and for easy tax administration.

To prevent the excise taxes to be eroded by inflation, the excise tax rates will be increased by four percent every year effective 2016 for distilled spirits and 2018 for cigarettes and beer.

On the first year of implementation of the sin tax law, the government is expected to raise additional revenues worth P33.96 billion, of which P23.4 billion is from cigarettes, P6.06 billion from distilled spirits and P4.5 billion from fermented liquors.

In the first nine months of the year, collection of excise tax on tobacco and alcohol jumped  by 63.9 percent to P63.6 billion or 73 percent of the government’s collection goal of P85.56 billion this year.  Of that amount, P43 billion will come from incremental revenues from the sin tax law.

The total Philippine tobacco industry volume of 23 billion units is  seen to have declined by 6.7 percent due to the proliferation of counterfeits, which is eating into PMFTC’s market share.

 The Philippines is one of the key markets for Philip Morris as it contributed 22 percent to the company’s shipments to Asia last year.