Scrutinize Sicpa claims

Coffee shop kibitzers can’t help but talk about a recent statement made by Hans Schwab, director for institutional relationships of Swiss firm SICPA Product Security SA, who wondered aloud in a briefing with reporters why it’s taking too long for the company’s proposal to be approved by the Philippine government. He said it only takes four to six months for other countries to approve their proposal, while here in the Philippines, negotiations have entered its third year already with no indication that their proposal will be accepted.

The answer to his question, one observer pointed out, is that in our country, issues have been raised about the effectivity of SICPA’s proposal for a tax-stamp system based on the experience of other countries that adopted it.

The SICPATRACE system proposal will involve the application to tobacco products of tamper-proof strip stamps using a combination of data matrix code and fuse-on features, as well as the installation in the premises of tobacco manufacturers of scanning and activation software to monitor the number of tobacco products produced, or the called track and trace feature.

The House ways and means committee has in fact recommended in its report that the government, particularly the Bureau of Internal Revenue, should stop negotiations with SICPA about its proposal, prompting the BIR to seek a legal opinion from the Department of Justice in the light of such a recommendation to drop negotiations. As of now, the legal opinion has not been issued and it could take a while longer to resolve the issue because of the forthcoming elections. The next administration may have to decide what to do with the SICPA proposal.

SICPA earlier submitted to the government an unsolicited proposal for the application of tax-stamp technology to collect more excise tax from cigarette and liquor exports. The proposal has been subjected to scrutiny by Congress as well as by the local tobacco industry, and they didn’t like it. Among the objections to it is that given the P18 billion cost to apply the system over seven years, it might be too expensive and might just raise the prices of the products to the detriment of the cigarette and liquor industry.

Lately, the local tobacco industry has been pressing the government to reject the SICPA proposal for a number of reasons, among them the alleged false claims being made by the Swiss company. Like the House ways and means committee, the Philippine Tobacco Institute (PTI) has urged the Department of Finance and the BIR to stop negotiations with SICPA and reject its proposal until the company addresses all issues being raised against its proposal.

There is this issue about SICPA’s claim, for instance, about the rampant sale of smuggled cigarettes in the country. During a congressional hearing, SICPA quoted international studies claiming that the country loses up to P10 billion in revenues each year due to the illicit trade of tobacco products. When asked by lawmakers if SICPA had verified such studies, SICPA said it had not.

PTI president Rodolfo Salanga himself said SICPA had failed to prove its claims about the alleged rampant sale of smuggled and contraband cigarettes in the country.

The ways and means committee has taken note of SICPA’s unsubstantiated claim in its report, saying that both SICPA and the BIR have failed to prove the claim when pressed. And apparently the committee won’t take the claim hook, line and sinker. The committee report noted that “as gathered during the committee hearings, the unsolicited proposal is based on assumptions made by SICPA and the BIR from certain local and international studies on cigarette trade…and that it is quite disturbing to note that these studies were not validated.”

The committee showed its exasperation at being given unsubstantiated claim when it said in its report that in the absence of any validation conducted by the BIR, NEDA, and NTRC (National Tax Research Center) on the assumptions used by SICPA on the alleged massive tax leakage and rampant trade of illicit cigarettes, the committee cannot simply assume or accept the existence of a tax leakage or trade on illicit cigarettes that will warrant the investment of P18 billion or a total of P20 billion for a period of over seven years.

It concluded in its report that this is a very onerous burden for a nebulous benefit to government.

Meanwhile, Salanga also disputed SICPA claim that its track and trace system works, saying its SICPATRACE system has been rejected in other countries and by an international body, in particular the World Health Organization Framework Convention on Tobacco Control (WHO FCTC) which said that SICPA’s system does not provide a “track and trace solution,” thus disputing its claim.

The WHO FCTC report said that in countries where SICPA’s system is implemented, including Brazil and Turkey, the tax-stamp systems there do not track the supply chain system. In effect, cross-border illicit trade is not addressed, it said.

Then there is the case of the State of Indiana in the US which rejected the technology offered by SICPA, Salanga said. The Indiana revenue department, which looked into the implementation of SICPA’s tax stamp program in California, which incidentally is the only state in the US with such a system, said in a report that the program “has not reduced contraband cigarette sales or increased excise tax collection, while costing the state and wholesaler millions of dollars.”

The Indiana revenue department in its report concluded that it cannot in good conscience show ample benefit to the state, nor can it in good judgment justify the expense an encrypted stamp tax program would impose on the taxpayers of Indiana.

It is for these instances that Salanga urged the Philippine government to take note of the developments on the use of SICPA in other countries as reported by various public bodies.

He emphasized that fast-tracking and continuing negotiations in the midst of evidence that SICPA’s costly system is ineffective in stopping sale of smuggled and contraband cigarettes only raises more questions on who will benefit from this transaction.

What Salanga is in effect saying is that all the claims of SICPA should be scrutinized to avoid false claims going unchallenged. Otherwise, he said consumers will be paying an additional 52 centavos per pack of cigarette for a scheme that cannot even achieve its purported objectives of preventing the sale of smuggled and counterfeit tobacco products.

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