No sin tax reform, no P8-B investment: BAT

By Cathy Rose A. Garcia,

Posted at Jul 12 2012 10:44 PM | Updated as of Jul 13 2012 09:38 PM

MANILA, Philippines - British American Tobacco (BAT), the world's second-largest publicly-traded tobacco company, is committed to investing $200 million (around P8.4 billion) in the Philippines, but this much-needed investment depends on the passage of the sin tax reform measure.

James Lafferty, BAT Philippines general manager, said the company is ready to invest $200 million in the next 5 years in its operations.

"We are committed to investing in the Philippines a minimum of $200 million over 5 years. We have been clear, we will not pour the money in unless excise tax reform is done. It is contingent on excise tax reform," he said, in a press briefing on Thursday.

BAT, who pulled out in 2009, returned to the Philippine market this year, buoyed by the Aquino administration's commitment to push for the sin tax reform bill.

Lafferty believes the passage of the sin tax reform measure will level the playing field, and allow BAT to compete fairly in the local market.

"We simply want a level playing field, which means I want my brand to pay the same excise tax as the other brands at the same price. That's it. Under the current system, if you were here before 1996, you pay this much and if you came in 1997, you pay more. How is that fair to set a pricing system based on year of entry," Lafferty asked.

Under the present excise tax system, brands which have been in the Philippines in 1996, which are basically brands of Fortune Tobacco, are permanently classified regardless of an increase in net retail prices. But the brands, such as those owned by BAT, which entered the market after 1996, are classified based on current retail prices.

The House of Representatives approved HB 5727 or the sin tax reform bill, but the Senate has yet to approve a similar measure. President Aquino has certified the measure as urgent, but Congress has only less than a year to go before elections in 2013.

Under the measure, a P12 tax will be imposed on cigarette packs with a net retail price of P11.50 and below starting 2013, and P22 tax in 2014. Cigarette packs with a net retail price of more than P11.50 will be taxed P28 in 2013 and P30 in 2014.

"Without excise tax reform, we're not competitive," Lafferty said.

BAT is currently selling Lucky Strikes in the Philippines at a loss, pricing it at around P28 a pack in order to compete with rival Marlboro. Lucky Strikes are currently taxed at roughly around P28.

"Everytime we sell (Lucky Strikes) we bleed," he said.

Level playing field

But Lafferty is in a fighting mood, ready to take on the critics and opponents of the sin tax reform measure, including the country's biggest tobacco company Philip Morris Fortune Tobacco Corp. PMFTC corners 94% of the local market.

"Our position is simple: we just want a chance to compete in the market. That's all. I don't want any special treatment. I don't want special grants from the government," he said, even challenging the critics to a public debate on the sin tax reform measure.

Lafferty addressed the criticisms against the excise tax reform, saying it will not mean an increase in smuggling of cigarettes or mean a fight between local and imported brands.

"Some are trying to turn this into an issue of a multinational company coming in and stealing jobs. But this has to do with the year you were launched... Imported brands like BAT are not expensive because they're imported. They are expensive because they pay P28 excise tax and nobody else pays P28," he said.

With the excise tax reform, Lafferty acknowledged the prices of cigarettes in the country will go up. "For 16 years, they have had a total tax holiday and built the market to 94% share... Maybe it's time for a bit of catch-up," he added.

The BAT official said the passage of the sin tax reform would not just mean a level playing field, but more tax revenues for the government, more investments and more jobs, not to mention discouraging smoking.

BAT is committed to having a presence in the Philippines for the long-term.

"We are here to stay as long as there is excise tax reform," Lafferty said.