A report compiled by the Senate Tax Study and Research Office (STSRO) details what the government is calling “fraudulent practices” by tobacco producer Mighty Corp. to avoid paying proper taxes and duties, rival tobacco company Philip Morris Fortune Tobacco Corp. (PMFTC) said.
Paul Riley, PMFTC president, presented the report in a press conference on Friday, detailing the under-declaration practices of Mighty for its import and export materials and products, highlighting the fact that Mighty’s excise tax volume share was well below the 23.7 percent consumer market share the company had captured as of end-June.
“The report was presented and discussed in Congress this week. We concur with the observations made by a member of the joint committee that the only conclusion that can be drawn is that this is a clear case of fraud. The findings may just be the tip of the iceberg,” Riley said.
“The report shows that Mighty committed a systematic and endemic fraud. A great deal of what we have suspected for a long time now is finally out in the open,” he added.
Among Mighty’s “fraudulent practices” alleged by the STSRO report are the use of imported materials to make cigarettes for export but diverting them to the domestic market without paying taxes and duties, and undervaluing the cost of tobacco and filter imports to evade customs duties and import value-added tax (VAT).
The report cited inconsistencies in Mighty’s per-stick market price as low as P1 versus the mandated P2 levied per stick for other brands and the disparity between the over 20-percent market share and the 13- to 14-percent excise tax volume share of Mighty as evidence of the company’s illicit practices.
“The STSRO uncovered several pieces of evidence that shed light on Mighty’s ability to sell all their products below tax and cost for almost 18 months now, while still enabling them to stay afloat,” Riley said.
According to the STSRO report, Mighty declared that 99 percent of its tobacco leaf and cigarette filter materials are being used for manufacturing cigars for export, and only 1 percent for domestic distribution. The report noted, however, that Mighty itself claimed in past news reports that it is exporting only 1.5 percent of its total cigar production.
Significant price differences
Based on various data from the government, Mighty has declared that it has been paying a consistent price of $0.68 per kilogram of Virginia, burley and oriental tobacco leaves for the past three years, compared to the varying prices of imports per year for its competitors, ranging from $1.75 per kilo to as high as $9.03 per kilo from 2010 to 2013.
Similarly, filter material for which Mighty declared a consistent $0.36 per kilo cost from 2010 to 2013 was in contrast to prices paid by its competitors and certified by the Department of Trade and Industry that ranged from $4.65 per kilo to $6.13 per kilo from 2010 to 2013.
The report also revealed Mighty has a lower excise taxes share compared to its increasing market share, a situation that is the reverse of the tax-to-market share ratio of its competitors. Mighty recorded a 23.7 percent market share through the first six months of the year but an excise tax volume share of 14.1 percent.
By contrast, PMFTC recorded a 71 percent market share in the same period, but accounted for 82.1 percent of the tobacco products excise tax volume. Other manufacturers combined for a 1.1 percent market share and contributed 3.5 percent of the excise tax volume.
BOC issued suspension order
The report noted that the Bureau of Customs (BOC) had ordered Mighty to suspend operations of its warehouse for underpayment of taxes in 2013, and further pointed out that the BOC order was not contested by Mighty.
PMFTC said that the BOC move in 2013 is proof that Mighty has engaged in questionable practices beginning as early as 2005, and called on the government to “strictly assess” Mighty to determine the proper taxes that should be collected.
“In light of the findings of the STSRO, we believe that the relevant government agencies will not hesitate to enforce the full weight of the law to achieve the government’s goal for everyone to pay the right taxes,” Riley said.
Mighty mum on allegations
Despite repeated attempts to contact Mighty Corp. to give it an opportunity to respond to the allegations of the STSRO report, company representatives were unavailable for comment.