Congressmen buck SICPA deal

Congressional leaders yesterday slammed the deal for a stamp tax technology on cigarettes and alcohol products being worked out between the Switzerland-based SICPA Product Security SA (SICPA) and the Bureau of Internal Revenue (BIR), saying it is heavily in favor of the Swiss proponent.

Antique Rep. Exequiel Javier, House ways and means chair, also said the BIR could not implement the SICPA proposal through the build-operate-transfer (BOT) scheme without the approval of Congress.

“If it’s a straight regular BOT system, then there’s no need for approval of Congress. But here, there’s a variation of the BOT which needs Congress’ imprimatur,” Javier said during a briefing given by the BIR on the SICPA proposal.

He stressed the SICPA contract essentially involves raising revenues, which is the sole prerogative of Congress.

“You cannot raise revenues without Congress’ approval. Aside from the excise taxes that you’re collecting, you’ll be raising revenues. You cannot do it through the BOT,” Javier said.

He also rejected claims that the Swiss firm’s tamper-proof stamp-tax technology called SICPATRACE System is “necessary” in combating smuggling and monitoring product withdrawals.

“There is a close monitoring by BIR of tobacco companies’ production. It’s hard to cheat on the volume of removals. There may be other reason for the proposal,” he said.

BIR Deputy Commissioner Lilia Guillermo defended the SICPA proposal, saying it would not entail any cost to the government since it would be undertaken through BOT.

Guillermo also said the additional cost for adopting the SICPATRACE technology will be passed on to consumers.

Deputy minority leader Paranaque Rep. Roilo Golez questioned why SICPA would get the lion’s share of the revenues that would be generated from the introduction of the stamp-tax technology on cheap cigarette and alcohol products.

Golez said that of the revenue haul of P31.6 billion, P20 billion or 58 percent will go to SICPA.

“The sharing scheme should be in favor of government. We should look further into this,” he said.

Golez warned that the project might follow the way of the contract of Societe Generale de Surveillance (SGS) where government paid for the services without realizing the promised benefit of curbing smuggling.

Congressmen investigated the SGS contract in the 8th and 9th Congress, leading to its cancellation.

The government, however, had to pay SGS P6.2 billion in back payments. The final tranche of payment amounting to P3.16 billion was settled by the government just this year.

Officials from tobacco companies said the SICPA technology would be “ineffective and counterproductive.”

Representatives from Philip Morris Philippines Manufacturing Inc. (PMPMI), La Suerte Cigar and Cigarette Factory, and Associated Anglo-American Tobacco Corp. attended the briefing.

Chris Nelson, PMPMI managing director, said the $300-million total project cost would deliver a painful blow on tobacco companies which are still reeling from the effects of the global recession.

Nelson said the SICPA contract has ballooned from $266 million to $300 million “without any given explanation for the increase.”

The Philip Morris executive also said the SICPA proposal would result into an additional P0.50 to P1 increase in cost per pack across the board for all brands.

“This (would) be higher than the excise tax increases in 2007, 2009 and 2011 for the low, medium and high tax categories,” Nelson said.

For PMPMI alone, Nelson said subscription to SICPA would translate to around P564 million to P1.1 billion a year in extra expense while for its bigger competitor, Fortune Tobacco, the figure would be between P1.6 billion and P3.2 billion a year.

Nelson blamed a BIR-commissioned study of the De La Salle University, which proposed the adoption of a technology similar the “track and trace mechanism” of SICPA.

The De La Salle study showed that the difference between the potential and actual collections only ranges from P625 million to P4.5 billion, and qualified that the variance cannot be attributed to tax leakage alone but to other factors as well.

“Even granting that it were so, the potential contribution of P4.5 billion is relatively small compared to SICPA’s claim that the additional revenue that its system could generate is P16.4 billion annually or P115 billion over seven years. This glaring discrepancy that should have raised a red flag, but did not,” he said.

Blake Clinton Dy, assistant vice president of Associated Anglo-American Tobacco Corp., said the SICPATRACE system proposal is impractical, unreasonably burdensome.

“Given our small size and limited resources, the adoption of this new system, in addition to the impending increase in excise tax as mandated by law, would impose financial burden that would be punitive in magnitude, resulting in uncompetitive prices for our products thereby decreasing sales and ultimately leading to the cessation of operations,” Dy said.

The BIR is currently meeting with a team of SICPA which planed in from Switzerland last week to negotiate the details of the contract.

The negotiations were an offshoot of a directive to the BIR from the Investment Coordination Committee of National Economic and Development Authority (NEDA-ICC) to proceed with the project.

Guillermo, who heads the BIR Information Systems Group, earlier said they will re-negotiate for the lowering of the project cost.

The Swiss firm is offering to install its own tamper-proof stamp-tax technology in the processing of cheap cigarette exports as they leave the manufacturing plants to the tune of P12.2 billion in seven years or roughly P1.74 billion per year in exchange for curbing smuggling.

The project covers a period of seven years with the pre-operational costs estimated at P2.056 billion and the operational expense at P10.116 billion.


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