Govt to gain P40B from JTI-Mighty deal

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The government will gain in almost P40 billion in additional revenues yearly from the “sin” tax on tobacco products, a Cabinet official said, following the sale of cigarette maker Mighty Corp. to Japan Tobacco International (JTI).

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Preliminary computations by the Department of Finance and the Bureau of Internal Revenue (BIR) show that JTI will be paying a minimum of P3.1 billion per month starting next year, about P2 billion more than what Mighty was previously shelling out.

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

“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,” Finance Secretary Carlos Dominguez 3rd said in a statement on Wednesday.

Mighty, which was facing a string of criminal complaints over its use of counterfeit tax stamps, offered to settle its tax liabilities last July for P25 billion, to be funded by a takeover by JTI.

The settlement — described by the government as the biggest by a single taxpayer — was funded by means of an “interim loan” from JTI and the sale of Mighty’s manufacturing and distribution business and assets, along with the intellectual property rights associated with these, for P45 billion exclusive of value-added taxes.

An initial payment of P3.4 billion was made in July and the balance remitted after anti-competition regulators approved the cigarette maker’s sale.

The Justice department also dismissed the criminal complaints filed against Mighty.

Dominguez said that in 2011, “sin” taxes brought in revenues equivalent only to 0.5 percent of gross domestic product (GDP).

After a new excise tax schedule was enacted into law in 2012, “sin” tax revenues doubled to about 1.0 percent of GDP but dropped in 2016 due to the proliferation of fake stamps and the implementation of graphic health warnings on cigarette packs.

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