The Department of Finance (DOF) made history in 2017 by collecting from cigarette manufacturer Mighty Corporation a total of P30 billion, the biggest sum on record raised by the government from a tax settlement, which was the result of a heightened joint campaign by the Bureaus of Internal Revenue (BIR) and of Customs (BOC) against tax cheats.
Under the leadership of Finance Secretary Carlos Dominguez III, the BIR and BOC stepped up their joint drive to expose Mighty’s use of counterfeit tax stamps through separate raids of its leased warehouses in Bulacan, Pampanga, General Santos City and other locations in the first quarter of 2017.
A total of 239,724 mastercases or close to 120 million packs of cigarettes bearing Mighty’s brands were seized by the BIR and BOC in several operations nationwide.
After the BIR filed three separate criminal complaints before the Department of Justice against Mighty for its widespread use of counterfeit tax stamps, the firm offered in July last year to shut down its operations and settle its tax liabilities. To implement this, Mighty’s manufacturing and distribution assets were sold to Japan Tobacco Inc. (JTI) for around US$ 1 billion. As a conditionality, Mighty paid around P30.4 billion (roughly equivalent to US$ 600 Million) in taxes, comprised of previous tax liabilities and transaction taxes, to settle its obligations to the Government.
“Mighty Corporation was forced to sell its business to pay for a settlement of its obligations, which was around $600 million. This resulted in the biggest tax settlement ever. The favorable settlement significantly improved revenue collections in 2017. The acquisition of Mighty’s tobacco business by JTI substantially improved sin tax collections,” Dominguez said.
The finance chief said that every month for the first three months since JTI took over Mighty in September 2017, collections from the Mighty operations of JTI have increased by an average of P2.5 billion a month.
The increased “sin” tax collections, Dominguez said, will 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.
Moreover, for 2017, the BIR was able to attain 97.2 percent (P1.779 trillion) of its collection goal of P1.829 trillion for 2017, while the BOC also improved significantly with its 97.8 percent (P457.637 Billion) accomplishment rate of its target of P467.896 billion.
Dominguez said he hopes that the closer coordination between the BIR and BOC, which was a key factor in the success of the campaign against Mighty, would yield another big-time tax cheat in 2018, especially after he had directed the two agencies to set up joint anti-smuggling task forces to intensify the government’s drive against tax fraud.
To further strengthen the government’s campaigns versus corruption and smuggling, the BOC, under the guidance of the DOF’s Revenue Operations Group, is expected to enact all the rules and regulations implementing the CMTA. Of the implementing rules, broken down into 42 Customs Administrative Orders (“CAOs”), eight have already been signed, while the rest are being fast tracked for completion in 2018.
These draft CAOs are a result of public consultations held by the BOC and are already posted in the CMTA microsite www.dof.gov.ph/cmta_ irr to encourage feedback and inputs from stakeholders.
Among the CAOs already issued by the BOC are regarding the establishment of the Authorized Economic Operators Program (CAO 5-2017), the clearance of postal items (CAO 3-2017), customs clearance of accompanied and unaccompanied baggage of travelers and crew (CAO 01-2017), conditionally tax- and/or duty-exempt importation of returning residents and overseas Filipino workers (CAO 06-2016), consolidated shipment of duty- and tax-free ‘balikbayan’ boxes (CAO 05-2016), establishment of an advance ruling system for valuation and rules of origin (CAO-03-2016) and imported goods with de minimis value and not subject to duties and taxes (CAO 02-2016).
The BIR, for its part, continues to carry out reforms in professionalizing the bureau to be more adept in addressing the needs of taxpayers.
With the DOF, the BIR is spearheading the launching in January 2018 of the first courses to be offered by the country’s first ever Philippine Tax Academy (PTA).
The PTA will initially provide training programs for some 400 new BIR employees and another batch of 100 fresh hires from the Bureau of Local Government Finance (BLGF).
Republic Act 10143, which was signed into law almost seven years ago during the 14th Congress, empowers the DOF to set up a tax academy to provide continuous training and education to personnel of the BIR, BLGF and the BOC.
The BIR continued to encourage the electronic filing of tax returns and bared plans to expand tax payment channels to include more private banks, mobile payment options and neighborhood Bayad Centers.
Dominguez said the BIR needs to invest big in information technology to realize its goal of making tax payments simpler and more convenient.
“But it’s a good investment, this is worth it. I think the public gains by not having to line up. The idea is to make it simpler, to make it more enjoyable to pay your taxes,” Dominguez added