Tax Rate On Brand Cigarettes Newports and Marlboro Cigarettes
A low end Newport cigarettes manufacturer is retailing cigarettes at a price lower than the excise tax rate. The company is effectively incurring a huge loss, according to Michael Tan, head of the LT Group whose Fortune Tobacco merged with Philip Morris Philippines.
Tan did not identify the cigarette maker but it is widely known that, according to the findings of A.C. Nielsen, Mighty Corp. has a large fully used capacity but does not declare total production to the Bureau of Internal Revenue for tax purposes.
Tan said during the annual stockholders meeting of the LT Group, the low end cigarette maker is retailing its brands at an average price of P23 per pack or P1.50 per stick.
It pays excise tax of P17 per pack and the 12 per cent value added tax or a total levy P19.75 per pack. Tan pointed out the company is left with P3.25 in gross margin. Tan was saying no cigarette maker can continue selling on a gross margin that may not be enough to cover production costs.
Yet, he suggested that Mighty Corp. is in practical control of the market for low-end cigarettes. He also said the company keeps its flanker brands -defined in the lexicon of business as “extension of an existing brand to create another product or brand with the increased market share. The new product may be a different size, flavor, or type but still falls within the same category of products.”
According to Tan, the flanker brand of Mighty representing 30 per cent of their total sales are sold at P1.25 per stick or P18.30 per pack. Since the total tax amount to P19.75 per pack, the company is effectively incurring a loss of P1.45 per pack in the flanker brands.
“How can products be sold below cost. Cigarettes sold below tax make up 30 percent of sales,” he added.
Oxford Economics told media in a briefing last week the country loses close to P16 billion in illicit locally-made cheap cigarettes. Oxford’s claim sits squarely with the allegation of A.C. Nielsen in its market research report there is a local cigarette maker which does not declare its total production to the BIR for tax purposes.