Gov’t to gain addt’l P40B in sin taxes from JTI takeover of Mighty

The Philippines stands to benefit around P40 billion in additional revenues from the sin taxes on tobacco products beginning next year after Japan Tobacco Inc. (JTI) took over the embattled local cigarette maker Mighty Corp., Finance Secretary Carlos Dominguez III said Wednesday.

Citing preliminary computations done by the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR), Dominguez said that JTI will pay a minimum of P3.1 billion a month starting January 2018, which is about P2 billion more per month than what Mighty had previously been paying.

"For fiscal year 2018, JTI is expected to pay almost P40 billion out of the estimated P118 billion in total excise tax collections on tobacco products," Dominguez said in a statement.

The amount represents a third of the total revenue collections from the excise tax on cigarettes.

Earlier this month, the Department of Justice (DOJ) has granted the plea of the BIR to withdraw the tax evasion complaints filed against Mighty after the taxman and the tobacco firm entered into a compromise settlement deal amounting to around P40 billion.

The BIR filed complaints against Mighty Corp. for its alleged use of counterfeit tax stamps on its cigarette packs, which correspond to excise taxes valued by the BIR at a combined P37.88 billion.

To pay its tax liabilities, Mighty sold its assets to JTI at P46.8 billion or approximately $936 million. 

Dominguez said that Mighty’s settlement of its tax obligations will significantly boost the national coffers at a time when the government is meeting the unexpected costs of several calamities.

The increased sin tax collections will, on the other hand, help improve health care facilities and enable the Department of Health (DOH) to procure additional medicines and provide services that will help prevent and control the deadly diseases caused by tobacco use, according to the Finance chief.

Mighty’s settlement sum was funded by means of an “interim loan” from JTI and the sale by Mighty and its affiliates of its manufacturing and distribution business and assets, along with the intellectual property rights associated with these assets, “including those owned by the company, Wong Chu King Holdings Inc., and other affiliates to JTI or any of its affiliates for a total purchase price of P45 billion exclusive of VAT.”

Dominguez recalled that in 2011, sin taxes from tobacco and alcohol products brought in revenues equivalent only to 0.5 percent of gross domestic product (GDP).

He said after the new excise tax schedule was enacted into law in 2012, revenues from sin taxes doubled to about 1.0 percent of GDP in the succeeding years, but dropped in 2016 to a 0.01 percentage point as share of GDP, owing mainly to the proliferation of fake stamps and implementation of graphic health warnings on cigarettes. — MDM, GMA News