BIR expresses concern on security of seized fake cigarettes

A court order for the Bureau of Internal Revenue to return seized fake cigarettes back to its owners may make it hard for the agency to prove the guilt of the suspected illicit trader.

This was the concern raised by the BIR after the Court of Tax appeals ordered the agency to return confiscated cigarettes and cigarette making machines back to GB Global which was raided by a joint BIR-National Bureau of Investigations strike team in July last year.

The raid yielded 238,300 packs of Two Moon and Soho brands supposedly intended for export to Thailand. The packs however do not comply with the requirements of law to include in the label the intended destination country and details about the manufacturer. The packs also did not have tax stamps as proof that excises taxes were paid.

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 “We are concerned over possible tampering of evidence. The seized products and equipment forms part of the body of evidence to support our case in court,” a BIR field official said.

BIR officials also expressed alarm over the CTA injunction which also directed the agency to withdraw security personnel for the BIR Commissioners office from the padlocked warehouse of Global.

The BIR is asking the CTA to reconsider the injunction order in a motion filed late last year.

The BIR and the Department of Finance is going hard against illicit cigarette traders after it shut down the fraudulent business practices of Mighty Cop that cost the government billions of pesos in excise taxes.

It was the biggest tax settlement forged by the government with Mighty forced to settle the tax delinquency at P30 billion. The owners of the company also had to sell their interest to an international cigarette company.

Based on Securities and Exchange Commission data, the BIR pointed out that ex-Mighty General Manager Greg Lim and Benson Chua are the biggest shareholders and directors of GB-BEM and GB Global. 

Finance Secretary Carlos Dominguez had pushed for an intensified campaign against illegal cigarette trade, saying he expects illicit trade to soar due to higher excise taxes. He said the BIR and BOC must “intensify surveillance and enforcement” against the manufacture and sale of illegal local cigarettes and smuggling of imported counterfeit products.

The Two Moon and Soho brands contained health warnings in Thai but a BIR check showed those products are not available in Thailand. Instead, the brands were widely available in Central Luzon and some parts of Mindanao.

The GB Global facilities were raided by a joint BIR-National Bureau of Investigation (NBI) Composite Team on July 29, 2020. 

The raid yielded 4,786 mastercases or 238,300 cigarette packs of non-BIR registered and non-compliant Two Moon and Soho brands. The illicit cigarettes were also without tax stamps as proof of excise tax payment in violation of Republic Act 10351 and BIR Revenue Regulations 7-2014 and 9-2015.

Because of such violations, the BIR ordered the seizure of three cigarette-making lines and two cigarette-packing lines at GB GLOBAL. 

In its motion for reconsideration, the BIR said the CTA’s jurisdiction is to issue suspension of collection of taxes and not to issue prohibition against BIR personnel in the exercise of its police powers as stated in Section 11 of Republic Act 1125 otherwise known as An Act Creating the Court of Tax Appeals.

BIR stated that the enforcement involves an administrative action and the exercise of the agency’s regulatory function and that no tax assessment was involved in this case.

This is an offshoot of BIR’s effort to curtail the proliferation of the illicit cigarette trade in the country in response to the government’s all-out campaign to go after illicit traders, BIR said in its filing.

The BIR cited Section 15 of the National Internal Revenue Code (NIRC) that vested revenue officers an authority to make arrests and seizures thus, in this case was simply enforcing its regulatory function.

An affiliate company of GB Global, GB-BEM Cigarette Company Inc. located at the Pampanga Economic Zone was also raided on February 5, 2020.  The BIR seized a total of 21 cigarette-making machines, twelve (12) mastercases of Two Moon cigarettes, and two (2) warehouses full of Two Moon and D&B, and assorted packaging materials. BIR totaled the seizure to 1,656,880 cigarette packs which were not registered with the revenue agency and not having the proper license to operate.

A statement by the Department of Finance (DOF) last April 6 said the BIR shut down the factory of GB-BEM because it was manufacturing cigarettes without the necessary permit to operate.