Only government will influence price of alcohol and cigarettes

ONLY the government has the power to influence the price of alcohol and cigarette products that are subject to excise tax in the event the unsolicited proposal by Sicpa Security Solutions SA successfully hurdles the so-called Swiss challenge.

Sicpa director for institutional relationships Hans Schwab emphasized this point in a briefing at the Makati Shangri-La on Friday as his company’s bid to win a government contract enters its third year.

Sicpa has offered to cure the rampant underreporting and smuggling of cigarettes and alcohol in the country with a proprietary process seen ramping up excise-tax collection by some P70 billion a year.

Schwab said the government will not have to spend a single centavo for a technology able to track and trace for tax purposes each exciseable product at any point of its production, distribution and eventual sale.

While the government immediately benefits from the system in the form of ramped- up collection, Sicpa will only get to bill the government for the service only after the system is up and running, Schwab said.

Because Sicpa assumes all the cost of putting up the system, there should not be any price increase on the sale of exciseable products, Schwab said.

“We provide the technology at absolutely no start-up cost to the government. Sicpa assumes all of the cost of deploying the system. We get paid on per-pack once the system is fully operational. At the same time the government starts paying Sicpa, it also starts benefiting from the incremental revenue, so on net basis, there is no cost whatsoever to government,” Schwab said.

“If after this the government still decides to pass on the cost despite the fact that it is a fraction of the additional revenue or if it still decides to pass on that cost to the manufacturer, then that is its choice,” Schwab added.

He also noted it has taken Sicpa three times longer than usual in the Philippines to complete a bid that should normally last them four to six months elsewhere.

He said while Turkey produces more or less 4 billion packs of cigarettes every year, the Philippines only produces 4.5 billion packs.

Turkey also manufactures 67 tobacco product lines while the Philippines has 150.

Schwab acknowledged unsolicited proposals in the country have a long and difficult history hurdling government requirements.

But he vowed to push forward and leave it to his principals in Switzerland to decide whether giving up was preferable over wanting to continue with the project.

“Giving up is something our shareholders will have to decide. But as long as we’re asked to wait and continue negotiation with government we will do so,” Schwab said.