No deal

The tax evasion proceedings against homegrown cigarette manufacturer Mighty Corp. is proving to be a test case in the Duterte administration’s campaign to punish corporate offenders.

It has, we heard, already caused a rift between lawmakers and President Duterte’s officials.

Mighty’s offer to settle was finally made public last week by the Department of Finance, which is reviewing the proposal sent to its attached unit, the Bureau of Internal Revenue, which is the lead agency in the cigarette firm’s case.

In a July 10 letter to Internal Revenue Commissioner Caesar R. Dulay, Mighty president Oscar Barrientos indicated that the firm was willing to “settle all such excise and tax issues and respectfully offer as settlement of the company’s shareholders’ and its officers’ liability … the total sum of P25 billion.”

The BIR has filed three tax-evasion cases against Mighty at the Department of Justice for its alleged use of fake tax stamps in order to dodge payment of excise taxes. It estimated the unpaid taxes at P37.88 billion.

Barrientos said the settlement sum would be funded by an interim loan from the unit of Japan Tobacco Inc. (JTI) in the Philippines and the sale by Mighty and its affiliates of its manufacturing and distribution business and assets, along with the associated intellectual property rights, including those owned by the company Wong Chu King Holdings Inc., and other affiliates to JTI “for a total purchase price of P45 billion, exclusive of VAT.” In effect, Mighty will cease operations after concluding its deal with JTI.

Barrientos indicated that Mighty would pay P3.5 billion in deficiency excise taxes on its cigarette products that are now the subject of the three tax cases pending at the DOJ. Mighty would also remit P21.5 billion “representing the liabilities of the company and its shareholders, as well as the company officers for all internal revenue taxes, including income tax from 2010 to 2016 and the tax period up to the closing of the proposed transaction with JTI, and all transaction taxes related to the agreement with JTI.”

He said that the initial payment of P3.5 billion would be paid by Mighty on or before July 20, and that a binding memorandum of agreement in relation to the proposed transaction with JTI would be concluded before that date. The balance is to be paid upon or after the sale of Mighty to JTI.

After all these, Mighty wants the BIR to issue to the company and its shareholders and officers “the relevant certificate of availment of compromise, a final tax assessment for all the company’s excise and other tax issues described above, and relevant tax clearances to the company, its shareholders and officers,” Barrientos said.

Finance Secretary Carlos Dominguez III is correct to make it clear that any settlement offer by Mighty for its tax deficiencies should be separate from the criminal charges that might be filed in court by the BIR against it. Dominguez’s position that criminal liability should be left out of any
settlement with Mighty is the alleged cause of disagreement between the cigarette firm and its backers in Congress on one hand, and the President’s economic team on the other.

Clearing Mighty of criminal liability under the proposed settlement will certainly weaken the government’s resolve to weed out unscrupulous businessmen who have been depriving the people of vital public services through nonpayment of taxes. Settlement with a company that underpaid its taxes without intending to—for example, due to a disparity in valuations—should be agreeable. But this should not be so for a company that deliberately evaded the payment of taxes by resorting to criminal acts like the use of fake tax stamps.

And just as a reminder, Section 263 of the Tax Code states that any person found in possession of locally manufactured articles subject to excise tax, the tax on which has not been paid in accordance with the law, shall be punished with a fine of not less than 10 times the amount of excise tax due, as well as imprisonment.