The two major competitors of La Suerte Cigarette Factory Inc.—Fortune Tobacco and Phillip Morris—must be gloating with extreme satisfaction these days. They have reason to feel on top of the world, having just scored what amounts to a major marketing coup against this enduring, century-old cigarette company.

They have, after all, just succeeded in their quest to ease out of the local market La Suerte’s Pall Mall, a potentially strong competition for Winston (Fortune) and Marlboro (Phillip Morris), the two most saleable cigarette brands in the country today.

La Suerte’s hopes of giving Fortune Tobacco and Phillip Morris a run for their money were shattered only this month when the Department of Finance (DOF) reversed itself with a verdict that effectively banished Pall Mall from the local market. What’s ironic about the whole thing is that the DOF’s final ruling on Pall Mall was based on a legal technicality.

That verdict, issued on February 11 in the form of a 2nd indorsement, specifically pertained to the correct and legal amount of excise tax that must be imposed on the Pall Mall brand. The final DOF ruling laid to rest the raging controversy on whether or not the Bureau of Internal Revenue (BIR) should be treating Pall Mall as a foreign brand for the purpose of taxing it.

It will be recalled that the initial thinking of the DOF on the tax issue was to give Pall Mall the same tax treatment that Winston and Marlboro were getting to ensure a level playing field. All three brands are foreign, but are being made locally.

This has been the raging question all along. Treated as a foreign brand, the excise tax would amount to not less than P25 per pack. As a local brand, the tax would only be P5.60. La Suerte intended to sell locally made Pall Mall at only about P15 per pack to be competitive with the retail prices of Winston and Marlboro.

As it turns out, however, the government has no choice but to slap the higher tax on Pall Mall, based on the revenue code. It may be unfair, but the law’s the law, Finance Secretary Gary Teves said. And so, with the newly adopted tax classification for Pall Mall, expect this brand to vanish from the local market (indeed, what manufacturer would sell a pack of cigarettes for P15 and pay a tax of P26.06?)

La Suerte owns a franchise from British American Tobacco to locally make Pall Mall. It has, in fact, been manufacturing and selling Pall Mall brands since August 2004. When the BIR under then-commissioner Jose Mario Buñag ruled in February last year that Pall Mall must be taxed P25 per pack (now P26.06), La Suerte promptly appealed the decision. The DOF five months later reversed Bunag’s decision based on the fact that La Suerte has been locally producing the new brand since 1964 and that there had been no prior valid tax classification for Pall Mall.

This DoF ruling, however, was contested in January this year by newly appointed BIR Commissioner Lilian Hefti. She pointed out to Secretary Teves that he may have been right in reversing Buñag’s earlier ruling, which was based solely on Section 12 of Revenue Regulations 3-2006.

She added, however, that another provision in the same set of regulations—Section 8, specifically—provides that the government must apply “the highest-tax-application rule.”

What Hefti said, in other words, was that the applicable provision is not Section 12 as invoked by Buñag. It is Section 8 (which underscores the highest-tax-application rule) that must be followed. Section 8 states: “In case the tax classification of the new brand. . . based on the suggested net retail price as declared in the manufacturer’s sworn statement, the importer’s sworn statement and the results of the initial and revalidation price surveys are different, the tax rate under the highest tax classification shall be applied for purposes of determining the proper tax classification for such brand.”

Hefti’s well-grounded opinion thus became the DOF’s basis for formally reversing its own stand in this three-year-old controversy.

In fairness to La Suerte, it has only been asking the government for fairness, nothing more. But as it turns out, La Suerte is out of luck. It has been outmaneuvered and outgunned all the way.

What proved fatal was the fact that about six months after La Suerte’s factories started producing the localized Pall Mall brands in 2004, Duty-Free Philippines (DFP) imported the same brands from the original manufacturer in Virginia for its own retailing business. This importation went on for a few months only, but during that brief period the BIR slapped the corresponding P26.06 per pack tax on DFP. Meanwhile, La Suerte continued paying the lower tax of P5.60 on the presumption that the government would not be so unfair as to favor the two other cigarette-making giants.

Having a malicious mind, my take on the whole thing is this: The entire elaborate scenario must have been planned or conceived by some tax-law expert in the employ of either one of La Suerte’s competitors. Put more simply, I think La Suerte has been outwitted, big-time. Now, it might as well kiss its Pall Mall dreams goodbye.

But all’s fair in love, war and business. As long as you don’t break any law while demolishing the competition, anything goes.

And, by the way, Secretary Teves assured me he didn’t change his stand on Pall Mall’s tax in connection with his long-pending confirmation by the Commission on Appointments. He said he did so because he had no choice but to uphold our revenue laws. “It may be unfair. . . but I cannot go against the law,” he said. The matter of his confirmation, he said, is another story.  

Omerta_bdc@yahoo.com

THE apparent faux pas involving the revelation at this week’s hearing by Sen. Jamby Madrigal of a supposed marginal note indicating First Gentleman Mike Arroyo is being given copies of official correspondences involving ODA-funded projects should have given the beleaguered National Economic and Development Authority (Neda) a reason to hit back at reckless detractors. As we shall explain later, it hasn’t.

One month ago, as the credit squeeze persisted, ratings agencies were forced to downgrade thousands of securities after failing to foresee the recent wave of defaults, particularly in subprime loans.

The two major competitors of La Suerte Cigarette Factory Inc.—Fortune Tobacco and Phillip Morris—must be gloating with extreme satisfaction these days.

Sway: Time to change the chair, not just the person on it

The Catholic Church hierarchy, although divided, doesn’t want President Arroyo to resign. But the bishops, in a statement, asked her to make the necessary changes in her administration to effectively deal with corruption. In short: Do what you can to fix things while you still have time.

Servant Leader: ‘Spe Salvi’–Part VIII

The community-oriented vision of the “blessed life” is certainly directed beyond the present world, but it also has to do with the building up of this world.

Philip M. Lustre Jr.: A hard Church and an opportunistic military

The nation’s two major institutions—the Church and the military establishment—are highly politicized. The Church, by virtue of its pervasive moral influence, and the military, by its monopoly of arms, are most effective in effecting political changes, particularly at crucial historical junctures. But they are also the nation’s most misunderstood institutions.

Ateneans Act! (Ateneans for Accountability and Truth)

We, members of the Ateneo community, address this statement to our Jesuit mentors, faculty members, fellow alumni/ae and, most especially, our countrymen, to express our resolve to live up to the ideals of our beloved alma mater in serving country and people.