British American Tobacco plans to sue the Bureau of Internal Revenue if it will not change the classification of its Pall Mall brand as premium brand subject to tax of P26.06 per pack.

Jeremy Flint, general manager of BAT, said the tobacco company will in the meantime bank on the "merits" of its legal arguments that the Department of Finance will affirm its decision and reverse the BIR’s ruling.

BAT is fighting for a mid-price excise tax rate of P6.74 per pack. The DOF on July 24, 2007 ruled that locally manufactured Pall Mall cigarettes be subject to this tax rate based on the results of a December 2006 price survey conducted by BIR.

But in a position paper submitted to the DOF on Jan. 15 this year, the BIR said the lower tax rate cannot be applied on Pall Mall because of the higher tax payments made by Duty Free Philippines when it imported Pall Mall in October 2004.

La Suerte Cigar and Cigarette Co. began selling locally manufactured Pall Mall cigarettes two months earlier in August 2004.

Citing Sec. 6 of Revenue Regulation 3-2006, which contains the implementing guidelines for RA 9334 of the New Excise Tax Act, the BIR said the "classification of a new brand shall not be lower than the highest tax classification for such new brand or any existing variant thereof."

Flint maintained BAT’s position that there was no prior classification. He said BIR made an "erroneous" interpretation of Sec. 8 of RR 3-2006 when it deemed Pall Mall finally classified as early as October 2004 based on the alleged discrepancy between the suggested net retail price or NRP of local Pall Mall and the NRP per pack of imported Pall Mall as reflected in the authority to release imported goods or ATRIG issued to DFP.

Flint said the proper comparison should be between the NRP in a manufacturer’s sworn statement and the actual NRP confirmed in a price survey.

In this case, he said, the BIR should have compared the NRP in La Suerte’s sworn statement and the results of the BIR’s Dec. 2006 price survey.

Under the law, a price survey should be made three months after the cigarette products were first sold and that must revalidated 18 months later. That would determine the applicable excise tax on the cigarette products.

The BIR did not conduct the price survey as required by law but instead classified Pall Mall at premium price subject to the P26.06 excise tax rate based on the excise payments of DFP for imported Pall Mall cigarettes.
The BIR came out with a price survey but it was done more than two years than the required timeframe.