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THE
world’s second-largest tobacco group—Bristish American
Tobacco (BAT)—and top local cigarette producer Fortune
Tobacco Corp. on Tuesday asserted their respective
positions over the constitutionality of the Philippine
tobacco excise law before the Supreme Court.
In oral
arguments, BAT reiterated its plea for the High Court to
declare unconstitutional Section 145 of the National
Internal Revenue Code (NIRC) for being “unfair and
discriminatory.”
BAT’s
lawyer Carlos Baniqued claimed the provision violates
the equal protection clause of the Constitution, as it
creates a distinction in the imposition of excise taxes
on brands of cigarettes existing before the
implementation of the law on January 1, 1997, and on
cigarettes brands introduced thereafter.
Meanwhile, lawyer Estelito Mendoza, counsel for
intervenor Fortune Tobacco, said BAT has only itself to
blame for paying higher excise taxes for its Lucky
Strike brand, and not as a result of a discriminatory or
defective excise tax law.
He
explained that the law was made effective January 1,
1997, and the provisions and procedure being questioned
by BAT were already there when it entered the Philippine
market in 2001 with the Lucky Strike Soft pack.
In oral
arguments before the Supreme Court, Mendoza said BAT was
originally paying only an excise tax of P8.96 per pack
of Lucky Strike based on its self-declared and Bureau of
Internal Revenue (BIR)-registered retail price of P9.90
per pack, which they agreed is still subject to a market
survey by the BIR as required by law.
However,
after a survey made in 2002, the BIR found out Lucky
Strike was actually being sold at more than P10 per
pack, thus bringing it to a higher tax bracket.
“BAT is
paying higher taxes not as a result of any act other
than its own. All that BAT had to do was to not to sell
at a price higher than P10 per pack so it will not jump
to a higher tax category,” Mendoza explained.
“There
is, therefore, no basis for a claim of equal protection.
It is not the fault of the law (RA 8240 as amended by RA
9334) nor is it because the law makes a distinction
between new and old brands. That is simply not the
case. BAT simply brought the problem upon itself,” he
added.
The
petitioner also asked the SC to enjoin the Department of
Finance and the Bureau of Internal Revenue from
enforcing Revenue Regulations 22-2003 which then
increased the excise tax on Lucky Strike cigarettes from
P8.96 to P13.44 in line with Section 145 of the NIRC.
Currently, Lucky Strike pays excise tax at P26.06 per
pack while competitor brands pay at a rate of P10.35 per
pack.
The
petition stemmed from the BIR’s 2001 decision to
reclassify BAT’s Lucky Strike brand to a significantly
higher rate while its competitor brands remained
unaffected.
“The
excise paid by old brands is effectively frozen in time
back in 1996, while brands like Lucky Strike pay much
higher excise rates that threaten their viability to
compete in the market,” Baniqued told the justices.
A close
examination of Section 145 of the NIRC, according to the
petitioner, would reveal that it creates a distinction
between existing brands and new brands of cigarettes.
It noted
that Section 145 bases the classification and applicable
excise tax of new brands on their current net retail
price, while it bases the classification and applicable
tax of existing brands on their average net retail
prices as of October 1, 1996, or nearly seven and a half
years ago.
The law
also stated that the classification of existing brands
of cigarettes and their applicable excise tax shall
remain in force until revised by Congress.
“In
creating a distinction between existing brands and new
brands of cigarettes and imposing excise taxes on
existing brands based on their net retail prices as of
October 1, 1996 while imposing excise taxes on new
brands based on their current net retail price, Section
145 of the NIRC clearly proscribes an environment of
fair competition among players within the cigarette
industry,” Baniqued said.
BAT
likewise sought the nullification of Revenue Regulation
9-2003, which modified the rules and procedures for
ascertaining the current net retail prices of new
cigarette brands; Revenue Regulation 1-97, which
distinguishes existing brand of cigarettes as those
registered prior to January 1, 1997 and new brands as
those registered thereafter; Revenue Memorandum Order
6-2003, which provided revenue officials uniform and
more detailed guidelines and procedures for establishing
the current net retail price of new brands of
cigarettes.
As a
result of the regulations, the BIR imposed on
petitioner’s Lucky Strike Filter, Lucky Strike Lts. and
Lucky Strike M Lts an excise tax of P13. 44 instead of
the previously imposed P8.96 per pack of 20s.
On the
other hand, Baniqued explained that existing brands of
cigarettes remain unaffected by the regulations,
although their current net retail prices are equal to or
even significantly higher than Lucky Strike.
The BAT
insisted that the implementation of the regulations was
an encroachment to the power of Congress to reclassify
the tax base between existing and new cigarette brands.
Baniqued
insisted that the objective of their petition is to
level the playing field among cigarette manufacturers.
“British Tobacco is the world’s second-largest tobacco
group, it has all the potential to compete in a level
playing field if only the law is fair...This is what
this case is all about,” Baniqued noted.
Mendoza
said that although Fortune Tobacco products are not in
direct competition with Lucky Strike, it felt the need
to intervene since a declaration of the excise tax law
as unconstitutional would create economic chaos—as
manufacturers would not know what will the basis of the
levying of taxes over cigarette products.
As to
the query that there are other products similarly
situated as Lucky Strike and yet paying lower excise
taxes,
Mendoza
said this is the result of the inflexibility of the
current specific tax system. This would not have been
the case if the excise tax system was value-based, or ad
valorem, since the tax automatically adjusts when the
price increases. |
