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Saturday, November 25, 2017

DOF raises expected sin taxes from JTI-Mighty to P40 B in 2018

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By Chino S. Leyco

The Department of Finance (DOF) has raised its expected additional revenue from the new owners of Mighty brand cigarettes starting next year that will be earmarked to fund the unexpected costs of several calamities.

In a statement, Finance Secretary Carlos G. Dominguez III estimated yesterday that the government stands to gain almost P40 billion in additional revenues from “sin” tax on tobacco products starting 2018.

Dominguez said the addition revenues will come from the local unit of Japan Tobacco International (JTI), the new operator of Mighty Corp.

Based on DOF and Bureau of the Internal Revenue’s preliminary estimates, JTI will pay a minimum of P3.1 billion per month starting January, which is about P2 billion more per month than what Mighty Corp. had previously been paying.

“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,” Dominguez said, representing a third of the total revenue collections from the excise tax on cigarettes.

Mighty Corp. which had 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.

The Bulacan-based cigarette manufacturer sold its assets to JTI to be able to pay off its tax dues.

With the approval of President Duterte, the DOF and BIR had accepted the P25-billion settlement offer, which represented the firm’s tax deficiencies.

Dominguez 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 R25 billion and could reach over R30 billion with the value-added tax (VAT) and other fees.

He said the settlement of Mighty Corp.’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.

Mighty’s settlement sum was funded by means of an “interim loan” from JTI and the sale by Mighty and its affiliates of its manufacturing and distribution business and assets.

Mighty also sold its intellectual property rights associated with its 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 proposed deal with JTI.

The DOJ recently dismissed the criminal complaints filed against Mighty following a move by the BIR to withdraw them after the tax settlement was finalized.

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).

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