British American Tobacco is able to perform miracles and magic, or, more likely, it has something up its sleeve.
In the advertising pages in the Philippine Daily Star on June 28, presumably, taken out and paid by “Concerned Entrepreneurs Against Monopoly / DB law”: it was the assertion that as a result of a level playing field from the Sin Tax Reform, a new players will buy 3 million kilograms of tobacco in the following year.
The proposal is for a foreign company for to buy the local leaf. The truth, he left the Philippines in 1979, unable to compete with local producers.
BAT has never bought a leaf of tobacco. It left the country after it lost its questioning the reclassification of cigarettes. It sold 50 million sticks of Lucky Strike brand, which is equivalent to 2.5 million 20-stick packs.
BAT tried to come back looking for what he calls a level playing field, a field that increases the excise tax on cigarettes by about 700%, while Lucky Strike, that it had intended to import has yet to establish the tax base.
According to Teresa Habitan, Deputy Minister of Finance, the cigarettes that BAT intends to import that will be taxed at the same rate as local low-end brands are estimated to account for 65% of cigarette demand.
If BAT, as announced, creates a $ 300 million cigarette factory of the plant, which will use only about 3 million pounds of the local leaf, or about 2.5% of the total production of 80 million kg of tobacco in 2011, it will be asking to lose its shirt.
Cristino Panlilio, Deputy Minister of Trade and Industry, went out of his way of saying that BAT does not give tax breaks or incentives. But here’s the rub. Panlilio said that if BAT establishes its operations in less developed areas (LDA) will be granted privileges, apparently of tax benefits that reduce production costs and give him an advantage over their competitors.
The miracles in the BAT plan is expected that he accuses Philip Morris, and good luck to perpetuate the monopoly of tobacco accounts for more than 95 percent of the total demand for cigarettes, although there are four players in the business.
The plan to create 300-M cigarette is clearly designed to break up the alleged monopoly of Philip Morris and Fortune Tobacco. This means that he will fight in the market, by all means - fair or foul.
BAT is an opportunity to import cigarettes, as previously planned, the import of tobacco products and increase consumption of local list of more than 3 million pounds.
What are the other possibilities? There are many. One of them is BAT will not created $ 300 million plant. This is a carrot dangled in front of the government. If this happens, it will lead to an increase in the consumption of leaves beyond 3 million pounds of ad claims that the new party will buy, presumably from local producers of the sheet.
BAT, as the proposed excise tax assets, will pay the same taxes as local low-end brand of cigarettes. He will have to produce cigarettes in the same category. But how far it can go using only three million kilograms of tobacco, when his nearest competitor clearly consumes most of the 80 million kilograms of leaf production?
Another possibility is BAT to import the bulk of 150 million sticks, he says he will produce. Yes, imported cigarettes will pay the same taxes as local production. But he will have the advantage of significantly lower costs, because all it needs is a string of warehouses, a large fleet of trucks and a large sales force.
A third possibility is to receive the benefits of BAT unknown if he finds a plant in less developed area, but presumably closer to the tobacco growing region, and many provinces in northern Luzon. Who will define “less-developed areas”? It’s a great question, because some of the city, say Tarlac, Pangasinan and Pampanga, even can not be arbitrarily classified as less developed areas.
It could be a decision that forced BAT to get together and go home. Now she returns, arguing that the playing field must be aligned with the over-taxation of low-end cigarettes, which, as noted above, account for about 65% of total demand. Lucky Strike is not lower, but the price of cheap cigarettes may be close to the BAT brand. If the price of the same or a Lucky Strike is only slightly higher, it will dominate the market and to prohibit smokers the opportunity to buy local brands.
The purpose of trying to reduce smoking by raising cigarette prices will never be executed, because smokers will switch to smuggled cigarettes or less expensive brands of BAT.