MANILA, Philippines - American tobacco giant Phillip Morris Inc. (PMI) said the Philippines has become its second challenging market in Asia throughout 2013, mainly due to alleged under-declaration by Bulacan-based cigarette firm Mighty Corp.
During its 2013 full year earnings conference call last Feb. 6, PMI chief executive officer Andre Calantzopoulos said its cigarette venture in the Philippines under PMFTC in partnership with taipan Lucio Tan, suffered a 13 percent drop in market share last year after the country raised taxes and its main rival, Mighty, undercut its competitors in the low-end cigarette market.
PMFTC’s market share slid to 72 percent in 2013 from around 85 percent the previous year.
Calantzopoulos accused Mighty of under-declaring goods, making it difficult for PMFTC to complete on a level playing field.
“Our ability to enhance our profitability through higher prices remains constrained by the flexibility that Mighty Corp. derives from its tax under-declaration,†he said.
“We estimate the local manufacturer Mighty Corp. is producing about double the volume that it declares to the Bureau of Internal Revenue. This has prevented us from being able to operate on a level playing field and continues to result in a significant tax revenue loss for the government,†Calantzopoulos said.
Calantzopoulos, however, believes that once Mighty starts paying the right tax on its products, cigarette volume in the Philippines will stabilize and this, he said, should be positive for PMI’s business in the Philippines.
He is hopeful that the planned implementation of a system of fiscal tax stamps in the second quarter will help address this issue.
Calantzopoulos noted that while the Philippine tobacco industry saw a 15.6 percent decline in volume, the drop was minimal and that adult smoking incidence and adult daily consumption remained at similar levels in the second half of 2013 to those that prevailed in 2012.
The PMI chief said the company also continues to urge authorities as well as lawmakers to hold hearings on the matter.
“Since the end of November, we have seen the Mighty brand stick price gradually rise from P1 to P1.50 and the Marvels brand stick price rise to P1.25. This is a positive development. However, their Marvels brand is still selling at a wholesale price of P183 per carton, which is below the P191 required merely to cover the new excise tax and VAT in force as of January this year. We do not know at this stage how Mighty Corp. intends to reflect the new tax levels,†he said.
Mighty Corp. executive vice president and spokesman Oscar P Barrientos slammed what it called a continuous and unrelenting smear campaign against it by competitors.
“Mighty Corp. continues to be vilified for having stood up to the industry giant. Since last year, the smear campaign has been nothing more than a rehash of the same lies and allegations,†Barrientos said.