Philippine President Rodrigo Duterte has directed the Department of Finance (DOF) and Bureau of Internal Revenue (BIR) to accept local cigarette manufacturer Mighty Corporation’s offer of P25 billion as settlement of its tax liabilities.
After the settlement, Mighty will no longer engage in the cigarette manufacturing business, Duterte announced during his second State of the Nation Address on July 24. He added that the settlement will not preclude any criminal cases that BIR might file against the cigarette manufacturer.
Duterte said he opted for settlement to avoid a long battle in courts. He added that the settlement payment from Mighty would be used to fund “unexpected costs for rebuilding Marawi and Ormoc.”
Marawi City in Lanao Del Sur has been in ruins, the site of an ongoing clash between government forces and armed supporters of the Islamic State of Iraq. Ormoc in Leyte was recently struck by a 6.5 magnitude earthquake.
“As the President has pointed out, the civil settlement will spare us a long-drawn out court battle that could take years to resolve,” Finance Secretary Carlos Dominguez III said in a statement.
The government’s full collection of Mighty’s settlement of its tax liabilities will depend on how swiftly the Philippine Competition Commission (PCC) can approve the sale of the home-grown cigarette company’s assets to Japan Tobacco International (JTI).
Dominguez added that the P25 billion offer from Mighty to settle its tax liabilities will rise to around P30 billion once the value-added tax (VAT) and other fees are included in the computation of the final settlement sum.
“This will be the largest sum of taxes collected ever from a single taxpayer in Philippine history. The date of full collection will depend on how fast the Philippine Competition Commission approves the sale of Mighty’s assets to the Japan Tobacco International whose largest shareholder, incidentally, is the Japanese Government,” Dominguez said.
The PCC is an independent quasi-judicial body created by law to promote and maintain market competition and a level playing field for business by checking anti-competitive practices. Parties to any merger or acquisition are required to notify and seek prior approval from PCC if the value of the transaction exceeds P1 billion.
The BIR, meanwhile, received last July 20 the first tranche of Mighty’s settlement offer of P3.5 billion, representing the cigarette maker’s deficiency excise taxes.
In its letter to BIR Commissioner Caesar Dulay dated July 10, Mighty offered to settle by July 20 its tax liabilities of P25 billion, of which P21.5 billion represents the internal revenue taxes of the company and its shareholders, to be paid once the proposed deal with JTI is closed.
Dominguez stressed that the receipt of this initial amount does not yet mean the formal acceptance by the government of Mighty’s P25 billion settlement deal.
Mighty president and director Oscar Barrientos said this settlement sum would be funded through an “interim loan” from JTI and the sale by Mighty and its affiliates of its manufacturing and distribution business and assets, along with the intellectual property rights associated with these assets, “including those owned by the company, Wong Chu King Holdings Inc., and other affiliates to JTI or any of its affiliates for a total purchase price of P45 billion exclusive of VAT.”
Barrientos has committed to shut down Mighty following the conclusion of its deal with JTI.
Image courtesy of yodiyim at FreeDigitalPhotos.net
