Lawmakers, tobacco execs oppose SICPATRACE tax system

November 10, 2009 9:35 am 

By Lilybeth G. Ison

MANILA, Nov. 10 –Members of the House of Representatives and officials of tobacco companies on Tuesday oppose the proposed tax stamp system on cigarette packaging, which is being pushed by Switzerland-based SICPA Product Security SA (SICPA).

During the Bureau of Internal Revenue (BIR) briefing of the House committee on ways and means, Antique Rep. Exequiel Javier, committee chairman, said the BIR could not adopt the SICPATRACE system proposal through the build-operate-transfer (BOT) law.

"If it's a straight regular BOT system, then there's no need for approval of Congress. But here, there's a variation of the BOT which needs Congress' imprimatur," he said.

"You cannot raise revenues without Congress’ approval. Aside from the excise taxes that you’re collecting, you'll be raising revenues. You cannot do it through the BOT," he added.

Javier was reacting to the statement of BIR deputy commissioner Lilia Guillermo that the SICPATRACE entailed no cost to government because it would be undertaken through the BOT.

According to the BIR official, the additional cost will be passed on to consumers.

Javier also disagreed that the SICPATRACE system would be necessary in the monitoring of product withdrawals.

"There is a close monitoring by BIR of tobacco companies' production. It's hard to cheat on the volume of removals. There may be other reason for the proposal," he said.

The SICPATRACE system proposal will involve the application to tobacco products of tamper-proof strip stamps using a combination of data matrix code and fuse-on features; and installation in the premises of tobacco manufacturers of scanning and activation software to monitor the number of tobacco products produced.

Paranaque Rep. Roilo Golez also questioned why the revenue share of SICPA would be bigger than the share of the government.

"The total projected revenue for seven years is P31.6 billion, of which only P11.5 billion shall go to government while a bigger P20 billion shall go to the proponent. The sharing scheme should be in favor of government. We should look further into this," he noted.

Golez also warned that the project might turn into another Societe Generale de Surveillance (SGS) proposition, which was a sad experience as government paid without getting the corresponding service.

Officials of tobacco companies Philip Morris Philippines Manufacturing Inc. (PMPMI), La Suerte Cigar and Cigarrete Factory, and Associated Anglo-American Tobacco Corp. also voiced their objection to the SICPATRACE system proposal, calling it ineffective and counter-productive.

Chris Nelson, PMPMI managing director, said the US$ 300 million total project cost will deliver a big blow to tobacco companies like Philip Morris, which is still reeling from the effects of the global recession, and more so the small players.

"The project cost has ballooned to US$ 300 million from US$ 266 million, but we were not given any explanation for the increase. This figure translates to around P0.50 to 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 the low, medium and high tax categories," he said.

For PMPMI, Nelson said, that translates to around P564 million to P1.1 billion a year while for its big competitor, Fortune Tobacco, the figure is between P1.6 billion to P3.2 billion a year.

Nelson also said what triggered the plan to adopt a track and trace mechanism was a De la Salle study commissioned by the BIR to improve tax administration.

The study showed that the difference between the potential and actual collections only ranges from P625 million to P4.5 billion, and qualified that the variance cannot be attributed to tax leakage alone but to other factors as well.

"Even granting that it were so, the potential contribution of P4.5 billion is relatively small compared to SICPA's claim that the additional revenue that its system could generate is P16.4 billion annually or P115 billion over seven years. This a glaring discrepancy that should have raised a red flag, but did not," said Nelson.

Blake Clinton Dy, assistant vice president of Associated Anglo-American Tobacco Corp., said the SICPATRACE system proposal was impractical, unreasonably burdensome.

"Given our small size and limited resources, the adoption of this new system, in addition to the impending increase in excise tax as mandated by law, would impose financial burden that would be punitive in magnitude, resulting in uncompetitive prices for our products thereby decreasing sales and ultimately leading to the cessation of operations," he said. (PNA)

RMA/LGI

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