NEDA gives green light on cigarette stamp tax

Posted on October 29, 2009
 

The National Economic and Development Authority (NEDA) has just given the green light to the Bureau of Internal Revenue (BIR) to pursue negotiations with Swiss firm SICPA Product Security S.A. on the latter’s unsolicited proposal to introduce a fool-proof tax stamps technology on cigarettes and alcohol.

NEDA’s Investment Coordination Committee-Cabinet Committee (ICC-CC) said the SICPA proposal could “enhance excise tax collection for all locally-manufactured cigarettes sold in the domestic market and to reduce illicit trade in the country using an integrated technology solution.”

The committee said the BIR must undertake the negotiations in accordance with Built-Operate-Transfer Law.

The committee “advised” the BIR to subject SICPA’s proposal to a Swiss challenge.

“The BIR is then expected to notify the (NEDA) ICC of the result of its negotiation with the unsolicited proponent of the proposal, towards undertaking the Swiss challenge,” it said.

In a Swiss challenge, other proponents are invited to offer better proposals. The original proponent, however, has the right to match the challenger’s terms.

NEDA’s opinion on the SICPA proposal was sought last March after the Department of Finance (DOF) opted to freeze action on the unsolicited proposal.

“Kapag pumasa, BIR will implement the project with the unsolicited proposal. If not, BIR has options, BIR will offer it for a Swiss challenge or bid out the project,” a DOF official said.

The DOF official said the DOF wants the project to be implemented soon to improve its tax revenues.

A law mandating government to use fool-proof tax stamps on cigarette and liquor products has not been enforced for 12 years.

Finance undersecretary Gil Beltran earlier said the unsolicited nature of the SICPA’s proposal does not exempt the BIR from submitting the program to a bidding process.

Beltran also pointed out that SICPA is not the only foreign company that could offer such technology.

The BIR had endorsed SICPA Product Security SA’s unsolicited proposal to undertake a P10.12 billion tamper-proof tracking and inventory system for affixing excise stamps into cigarette products as they leave the manufacturing plants.

The Swiss firm made representations that its proprietary tracking and inventory system for cigarette products is tamper-proof and would benefit the government.

SICPA was later found, however, to have an operating capital the equivalent of only P56.4 million when the entire project should cost government P10.12 billion over a seven-year period.

It was also pointed out that SICPA’s financial statements submitted for evaluation of financial capacity do not comply with Philippine financial reporting standards.

SICPA said its proposal would guarantee additional revenues for government of at least P13.31 billion.

But SICPA’s state-the-art services could mean an expense of $193 million in fees to be charged from tobacco and liquor companies.

The fee is to be collected by the BIR from producers of tobacco and alcohol products for remittance to SICPA.

The foreign company expects to collect from the government another P2 billion in professional fees to be taken from the budget.

SICPA submitted its unsolicited proposal as early as Jan. 2, 2008. However, the BIR informed the DOF of the alleged acceptance of the proposal only on Oct. 14, 2008.

A local umbrella group of cigarette manufacturers and importers said the tax stamp technology being dangled by SICPA was “outdated,” “costly” and “unsecure.”

It said the system could wipe out its smaller members because of the huge cost of adopting it.

The Philippine Tobacco Institute (PTI) said the SICPA system is also vulnerable to counterfeiters which could duplicate or “mimic” even the most sophisticated paper stamps.

“In today’s world, paper stamps or stickers are an outdated, costly and not very secure technology,” PTI president Rodolfo Salanga told the House committee on ways and means during a previous hearing.

Salanga said SICPA has unhappy clients in Malaysia, Turkey and Brazil for failing to deliver on its promise of increasing customs revenues as attested by their affiliates.