Mighty loses might after flaunting law

Several infractions with tax laws were slapped against local cigarette producer Mighty Corp. that saw the company, once bruited as a threat to multinational tobacco companies, fall in disgrace. 

Last Friday, two warehouses of the company in Bulacan province were raided by Bureau of Customs (BOC) agents following a tip that cigarettes with fake tax stamps with an estimated value of P3.2 billion were stored in the facilities.

About 160,000 master cases of Mighty cigarettes were found in the two warehouses in a raid the BOC conducted in coordination with the Bureau of Internal Revenue (BIR), local police and barangay officials.

Earlier, charges had been filed by the BIR against Mighty Corp., which manufactures the cigarette brand, for allegedly evading the payment of about P9.564 billion in excise taxes by using fake tax stamps.

Customs Commissioner Nicanor Faeldon said the BOC would intensify its campaign against smuggling and all other forms of illicit trade that continues to deprive the government of revenues.

From a measly 4 percent at the start of 2013, Mighty’s market share skyrocketed to 30 percent in 2016, a growth that baffled almost everyone, including the most astute tobacco-industry analysts.

Nowhere in the world can a tobacco company grow as much in a highly regulated industry.

The previous administration, particularly the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR), however, seemed to have seen nothing irregular in such monumental uptrend in an increasingly shrinking cigarette market.

Mighty Corp., owned by the Wongchuking family, suffered its first major setback following the voluntary offer of the owners of Metro Gaisano Mall for the BIR to inspect its stocks of cigarettes.

Of all the brands checked, only Mighty products were found to be carrying fake tax stamps. The owners wrote the BIR to attest the confiscated stocks were brought directly from Mighty Corp.

This was followed by two lightning raids conducted by the BOC in five warehouses in Pampanga province’s San Simon town and in General Santos City.

The twin raids yielded 36.622 million packs of Mighty cigarettes, which when randomly tested. All were found positive with fake tax stamps.

What proved to be even more damning were lease contracts obtained by the BOC showing that Mighty Corp. itself was renting these warehouses.

At P30 excise tax per pack, the potential excise taxes lost could total P1.099 billion.

These developments obviously drew the ire of President Duterte who has not only trained his sights on corrupt public officials but is desperately building up the national coffers to fund an ambitious public infrastructure program.

Mr. Duterte had ordered his Chief Presidential Legal Counsel Salvador Panelo to file charges against Mighty and effect the arrest of the Wongchuking owners for tax evasion and economic sabotage.

He even recalled an incident when he was Davao City Mayor where the Wongchukings reportedly tried to influence him financially and lobby for their favored excise tax regime.

As these were developing in Malacanang, the BOC continued its crackdown on Mighty.

The BOC issued Mission Orders on the strength of its jurisdiction over imported cigarette filters and raw tobacco as well as its power to go after smuggled cigarettes.

Two 40-foot container vans were held at the Port of Cebu, while some 400 cartons of Mighty products- Mighty and Marvels- with fake tax stamps were seized.

The Bureau of Immigration also placed Alexander and Ceasar Wongchuking in its watch order, alerting all air and seaports to be on the look-out in case any or both of the brothers flee the country while the case is being investigated and put together by the Departments of Finance and Justice.

An initial offer of Mr. Duterte for a double-the-assessment settlement was nipped in the bud when DOF officials and businessmen found the figure to be too low.

It was the wrong message to send tax cheats who can go on their merry ways without fear of retribution.

“It’s okay to cheat but if you get caught, just settle” would seem to be the takeaway from this exercise. The best deterrent to any crime is the certainty of punishment, not settlement.

According to DOF officials, the National Internal Revenue Code allows for a settlement of unpaid excise taxes ten times the amount sought to be evaded.

They also noted that the settlement will not extinguish any criminal liability on the part of the tax offender.

Tax experts also pointed out that there are only two instances when settlement is allowed under the Tax Code.

These instances are the doubtful validity of assessment of financial incapacity; and if fraud is established, there should be no doubt on the validity of the assessment.

And since Mighty has been declaring profits for many years now, there is no financial incapacity.

Thus, criminal and civil charges will eventually be filed against Mighty Corp as soon as the DOF finishes its evaluation of the confiscated products and audit of past tax declarations.

For its part, Mighty continues to profess innocence.

The company challenged the authority of the BOC to conduct the raids and was able to get a temporary restraining order from Manila RTC Judge Tita Bughao Alisuag.

Judge Alisuag has since been brought to the Supreme Court by the BOC on administrative charges and has inhibited herself from the case.

With its jurisdiction challenged, the BOC exercised a summary decision well within its powers. The BOC issued a crippling suspension of import license on Mighty. Without the permission to import, Mighty would virtually shut down manufacturing operations.

There are no local supplier of acetate tow, the raw material for cigarette filters.

Mighty likewise imports significant quantity of tobacco leaves to blend with local purchases.

Although nothing is stopping them from tapping small players or third party brokers to do the importation for them but for sure this time at the legitimate declared import prices.

As the full force of the law is brought down on Mighty, both the Senate and the House of Representatives are set to conduct their own independent probe on Mighty’s tax evasion and alleged use of fake tax stamps.

Sen. Manny Pacquiao, the erstwhile punching bag of former BIR Chief Kim Henares, has counter punched his tormentor and took her to task for not doing anything against Mighty during her watch.

Navotas Rep. Federico Sandoval is calling for a congressional investigation into the billions of government revenues lost from Mighty and determine how congress can plug loopholes in the existing tax laws. LUIS LEONCIO