PORAC, PAMPANGA—Finance Secretary Carlos Dominguez III has underscored the need for heightened government vigilance against the illicit manufacture and sale of tobacco products, given that the increase in “sin” taxes has incentivized illegal traders to increasingly resort to smuggling and tax evasion.
Dominguez said the destruction here of several machines used in the manufacture of illicitly traded cigarettes forms part of the Duterte administration’s relentless campaign against manufacturers of these products as effectively demonstrated in 2017 when the Department of Finance (DOF), through the Bureaus of Internal Revenue (BIR) and of Customs (BOC), cracked down on the “biggest fish,” namely Mighty Corp.
Taking down Mighty Corp. for using counterfeit excise tax stamps led to the biggest tax settlement ever in the country’s history amounting to about P30 billion, forcing the company to get out of the cigarette business, Dominguez recalled.
Moreover, after Japan Tobacco Inc. (JTI) took over Mighty, tobacco excise tax collections increased by at least P2 billion a month, he said.
“The destruction of these confiscated contraband will send a clear two-pronged message: Illicit manufacturing will not be tolerated. Tax evasion will be hounded ceaselessly,” Dominguez said.
Held at the DiGaMa Waste Management Services facility here, the event was also attended by BIR Commissioner Caesar Dulay, BIR deputy commissioner Arnel Guballa, Pampanga Vice Governor Dennis Pineda, National Bureau of Investigation (NBI)-Intellectual Property Rights Division chief Glenn Ricarte, Porac police chief P/Supt. Crisente Tiguelo, Philip Morris and Fortune Tobacco Corp. (PMFTC) president Lawrence Chew, and JTI Philippines general manager Manos Koukourakis.
During the event, Dominguez thanked the private sector for joining forces with the government in helping fight smuggling and tax evasion.
The destroyed contraband include units and parts of three filter maker machines, two packaging machines, and a cigarette-making machine, along with 484 master cases of various finished cigarette brands, and raw materials used in making cigarettes such as filter rods, tipping papers, packaging foil, acetate tow, and other supplies.
The machines were bulldozed into pieces, while a grinder destroyed the cigarettes. These contraband were seized by the BIR in illegally operating cigarette factories in Pampanga and Pangasinan.
Dominguez said this would not be the first time that illicit cigarettes were destroyed, and would certainly not be the last.
“But this is the first time we are destroying the machines that make them. Destroying them will ensure that they can never again be used to defraud the government of what it is due and to cheat consumers by peddling them counterfeit products,” Dominguez said.
With a single cigarette-making machine capable of producing 20,000 sticks per minute, which is equivalent to about 9.6 million sticks during an eight-hour shift or 480,000 packs per day, the government has effectively blocked attempts of being defrauded of as much as P16.8 million per day of much-needed revenues for human capital development and the “Build, Build, Build” program by destroying these confiscated machines and products, Dominguez said.
“By destroying illicit tobacco products, we remove all temptation to sneak them back into the market. By destroying the machines that make them, we raise the risks for doing illicit manufacturing exponentially higher. Both will do the public some good,” he said.
Dominguez said that to strengthen the campaign against smuggling and tax evasion, the BIR has formed a strike team tasked to crack down on illicit manufacturing and trade.
“This team is responsible for the contraband we are destroying today. The underground cigarette business is not only evading the payment of excise taxes, they are exposing our consumers to the added hazards of unregulated manufactured products,” Dominguez said.
On the part of the BOC, the government has improved its capability, along with the Coast Guard, to effectively patrol the country’s trade routes and intercept the smugglers.
“We are aware that with the increase in sin taxes, there will be greater incentive for evasion. This is the reason we have heightened our vigilance against the manufacturing and trade of illicit cigarettes,” Dominguez said.
The Finance chief said that “getting tough against the illicit tobacco trade” would fulfill the health and fiscal benefits of the “sin” tax reform law.
“I promise you that your revenue-generating agencies will be unyielding in their efforts to thwart illicit manufacturing and tax evasion,” he added.