The government stands to gain almost P40 billion in additional revenues from the “sin” tax on tobacco products starting in 2018, following the Japan Tobacco International (JTI) takeover of Mighty Corp., according to Finance Secretary Carlos Dominguez III.
Preliminary computations done by the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) show 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 Corp. had previously been paying.
According to Sec. Dominguez, JTI is expected to pay almost a third of the total revenue collections on tobacco products, P40 billion out of the estimated P118 billion total, for the 2018 fiscal year.
Mighty Corp., which faced a string of criminal complaints filed by the BIR before the Department of Justice (DOJ) for its use of counterfeit tax stamps, offered, last July, to settle its tax liabilities for P25 billion and shutter its business.
Mighty Corp., a Bulacan-based cigarette manufacturer, sold its assets to JTI to be able to pay off its tax liabilities.
With the approval of President Duterte, the DOF and BIR accepted Mighty Corp.’s P25-billion settlement offer.
Mighty’s settlement sum was funded by means of an interim loan from JTI and the sale 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.”
The balance of P21.5 billion was paid after the closing of the deal with JTI.
The BIR to withdrew its criminal complaints against Mighty Corp. after the tax settlement was finalized. The complaints were subsequently dismissed by the DOJ.
Dominguez has said that the total amount the government would be getting from the tax settlement—the largest ever from a single taxpayers in the country’s history—is beyond P25 billion and could reach over P30 billion with the value-added tax (VAT) and other fees factored in the settlement and sale of Mighty’s assets to JTI.
He said the settlement of Mighty’s 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, Dominguez noted.
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.