Pall Mall maker threatens to pull out brand from RP market

BY JUDY T. GULANE, Senior reporter/BusinessWorld TOBACCO BRAND Pall Mall would be pulled out of the Philippine market if the government decides to impose the highest tax possible on the brand, British American Tobacco (BAT) Philippines Ltd. said Tuesday. Jeremy Flint, BAT Philippines general manager, said the brand’s local manufacturer would be forced to raise Pall Mall’s retail price to P34 per pack to absorb a P26.06 excise tax per pack, the tax rate for brands in the premium category. But at P34 per pack, Pall Mall simply would not be viable. "It would be commercial suicide," the BAT official said. Cigarettes sold in the Philippines are classified into low —, mid, high — and premium-priced for tax purposes. The higher the bracket, the higher the tax. The Finance department, which earlier overturned the Bureau of Internal Revenue classification of Pall Mall as a premium brand, is still awaiting the tax bureau’s comments on its decision to classify the brand as mid-priced, subject to a P6.74 tax per pack. The department is revisiting its decision, to accede to other cigarette firms’ requests for a review. These firms, led by Fortune Tobacco Corp. and Philip Morris Philippines Manufacturing, Inc., accused the department of downgrading Pall Mall to the mid-priced bracket, a move barred under the law. Gaudencio A. Mendoza, Jr., Finance undersecretary for legal and revenue operations, said the department would not change its decision unless there was "compelling" reason. The tax bureau has indicated it would stick by the Feb. 22 ruling of former tax chief Jose Mario C. Buñag classifying Pall Mall as a premium brand. Mr. Flint said Mr. Buñag’s decision has been disastrous for Pall Mall, as the withdrawal of cigarettes from the factory for sale to the public had to be stopped in March. Sale of Pall Mall had been improving, he said, with the number of cases withdrawn from the factory increasing to 1,089 in 2006 from 121 in 2005 and 30 in 2004. Only 176 cases were withdrawn in January and February this year, a fraction of the planned 1,500, resulting in millions of pesos in unrealized sales. Cigarettes are taxed each time they are withdrawn from the factories. Susan M. Resurreccion, internal legal counsel of La Suerte Cigar and Cigarette Factory, said the withdrawals had to be stopped as La Suerte did not want to pay the P26.06 tax per pack for Pall Mall. La Suerte is Pall Mall’s local manufacturer under a licensing agreement with BAT Philippines. Ms. Resurreccion said getting a refund for excess tax payments, should Pall Mall be finally classified as mid-priced, would take "years." The La Suerte official also noted that while Mr. Buñag’s decision was supposed to take effect on Jan. 1, 2007, the tax bureau has not sent La Suerte an assessment for withdrawals made in January and February. Should La Suerte dispute the assessment, the Pall Mall case could be elevated to the Court of Tax Appeals. Mr. Flint, however, said he was confident that the Finance department would sustain its ruling and that present Tax Chief Lilian B. Hefti would respect that ruling. The losers would not only be BAT Philippines and La Suerte should they be forced to pull out Pall Mall from the market, he pointed out. The government would be, too, since it would have to forgo billions of pesos in tax revenues.