Business Circuit

“We must earn true respect and equal rights from men by accepting responsibility.”- Amelia Earhart, US aviator, speech, 1935

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The clearest proof that La Suerte Cigar and Cigarette violated the law when it arbitrarily classified its Pall Mall brands in the medium category with an excise tax bracket of P6.35 per pack is found in the provisions of Sec. 6 of Revenue Regulation No. 3-2006.

It states "a variant of an existing brand that was introduced between Jan. 1, 2004 and Dec. 31, 2004 shall be classified under the highest tax classification for that brand …"

Pall Mall is an existing brand with four variants. La Suerte entered into a trade mark licensing agreement on March 12, 2004 with British American Tobacco which owns the Pall Mall brands.

La Suerte requested the large taxpayers service of the BIR for the registration and manufacture of the Pall Mall brands. It submitted a sworn statement which effectively indicated a "suggested retail price" (SRP) of P12 per pack with an excise tax of P5.60 per pack (adjusted to P6.35).

Based on the revenue regulation, the excise tax of the Pall Mall brands should be classified under the premium bracket with an excise tax of P26.02 per pack. The violation is self-evident.

The sworn statements on costs and suggested retail price of a brand of cigarettes submitted to the BIR are never taken as gospel truth.

The statements and the SRP are subject to review and classification. And that is exactly what the BIR did on Jan. 20, 2006, the BIR was asked (presumably by the Department of Finance) to review and revalidate the classification of the Pall Mall brands produced by La Suerte compared to the same brand produced by British American Tobacco.

La Suerte claimed that it started selling selectively in Sept. 2004 in Region 1, and in Region 5 in October. By December, La Suerte admitted that it was selling the Pall Mall brands throughout the country.

Strangely, a market inspection conducted by the BIR on Feb. 24, 2006 showed that there were no Marlboro brands in nine major supermarkets in the cities of Caloocan and Quezon.

In another survey, conducted in December of the same year, it was discovered that there were locally produced Pall Mall brands selling at P14 per pack, compared to a declaration of P12.

Finally, the BIR ruled on Feb. 22, 2007 that the Pall Mall brands produced by La Suerte fall under the premium category with an excise tax of P26.02 which is almost double the retail price of P14 per pack.

British American Tobacco did not agree with the upwards classification of the Marlboro brands produced here by La Suerte. Its lawyer argued that "the BIR has not yet subjected the Pall Mall brands imported by Duty Free Philippines to the validation and revalidation requirements and such, the proper tax classification of the DFP-imported Pall Mall brands have not yet been finally determined; and, the Pall Mall brands being marketed and sold in the domestic market by La Suerte/BAT were launched ahead of DFP’s importation."

The question I want some answers to is why it would matter, as far as excise tax rates are concerned, that La Suerte launched the Pall Mall brands before Duty Free imported the same brand?

Imported Pall Mall paid an excise tax of P25 per pack. La Suerte declared that the locally-produced brand is in the medium category with an excise tax of P6.35 as adjusted.

The more relevant point here is to argue that imported Pall Mall brands are more expensive – hence an excise tax of P25 per pack – than the locally-produced counterpart.

But then, we have to reckon with Sec. 6 of Revenue Regulation No. 3-2006 which states that variant of a brand introduced between Jan. 1, 2004 up to the end of the year shall be fall under the highest tax classification which is P26.02 per pack.

The real issue in the case of Pall Mall’s possible back taxes and continuing tax liability is the fact that the BIR has not made any classification as to what excise tax bracket the brands belong. In fact even if such classification has been made, the BIR is required by law to make periodic validation.

Another BIR regulation states: "After the end of 18 months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail price as of the time of revalidation in order to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be classified."

La Suerte introduced the Pall Mall brands in the market in 2004. Three years later, but the brands have not been classified. The self classification of P5.60 per pack is arbitrary.

But classification finally happened in February 2007. After enjoying (if not cheating) low tax rates for so long, La Suerte wants to stay in the same low bracket for its Pall Mall brands.

"Get the big fish," the President said. La Suerte is not a fry. It is a big fish. But nobody in government seems to have the courage to touch La Suerte.

I recall that during the time of President Ramos, a special investigating team for cigarettes discovered that La Suerte had liabilities of around P3 billion. Then BIR commissioner Liwayway Chato abated the amount to a level not authorized by law. Then, it was made to appear that the back taxes were liabilities of independent dealers and they paid.

The amount each of the dealers paid is probably more than their income for 10 years. La Suerte got away with it.

Habitual offender

I fought hard and long for the government using the incontrovertible documents of a former La Suerte salesman Roberto Mendoza. I had a few kilos of receipts written on scrap paper. The receipts reflected the correct price.

The official receipts were understated. Therefore, La Suerte may have evaded millions of pesos in taxes. BIR commissioner Willie Parayno, using some of the documents he demanded from me, closed La Suerte for about two months.

Then it was allowed to open but no additional assessments were made. It seems that the case was fixed. A certain Doris of the Law Division told Mendoza that I was given P50 million of the big loot.

I hammered on but nothing really happened. A big fish got away.

Based on my experience with La Suerte, I might well believe that orders are given to the BIR to identify the 20 or so biggest taxpayers. Malacañang gets the list, using it as a tool to chisel. At the same time, the BIR gets the impression that the names in the list are untouchable. Is La Suerte one of the untouchables? I will never know. I have not seen the list. I will never see it.

The whole point of this exercise is to show how shallow – in fact empty – is the President’s order to "get the big fish." She knows who they are. But she wouldn’t get them.

So much for big words that ring hollow.