Duty Free Philippines boosted by ‘sin tax’ exemption

Duty Free Philippines’ business at Fiesta Mall (pictured) and airports should soar with the ‘sin tax’ exemption

PHILIPPINES. Duty Free Philippines’ liquor & tobacco business is set to soar following the company’s recent exemption from “˜sin taxes’ on both categories.

The Moodie Blog“˜Pasalubong’ power in the Philippines
The scale and dynamism of Duty Free Philippines’ confectionery business really has to be seen to be believed. After yesterday’s tour of flagship outlet Fiesta Mall today we returned to get an insight into the retailer’s largest category and the drivers behind it. The key driver, if we had to sum it up in one word, is “˜pasalubong’, which means “˜gift’ in Filipino.
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Since 2005 both liquor & tobacco have been subject to Customs duties and VAT, at rates of between 33% and 40%, with a severe negative impact on the business over the past five years.

But under new rules passed by both Houses of Congress in February, the retailer has regained its exemption, and can once more offer duty free prices on liquor & tobacco.

The new duty free pricing regime will be rolled out over the next four weeks, with older duty paid stocks having been depleted since the rules changed in February.

Speaking to The Moodie Report in Manila today, DFP General Manager Michael Kho said: “We expect liquor & tobacco sales to each rise by at least +20% as a result, and also we expect a big knock-on effect on other categories too.

“The introduction of that legislation in 2005 really priced us out of the market. Since then, when we’ve been travelling through the major international airports we would hear salespeople encouraging Filipinos to buy with them rather than at home because of the great price advantage they could offer. And at the time that was accurate, and it hurt our business.

“Now our price advantage on two of the key travel retail categories is back.”

Michael Kho: “If these two categories are not competitive, then the entire business suffers”

Kho added: “The legislation was designed to restructure and strengthen the Ministry of Tourism, to enable it to market the Philippines more effectively. The money we make goes towards the development of tourism in the country. One of the things our legislators realised was that if DFP is successful, and we generate more profits, then those profits can help promote tourism.

“We made the point that if these two key categories are not competitive, then the entire business suffers. We’re pleased that they saw the bigger picture, and understood that lifting these taxes would greatly aid the viability of the business.”

Liquor sales are expected to surge by at least +20% with the new pricing regime

The retailer plans a major advertising campaign to notify consumers about the new prices. Kho said: “We have to communicate the change to people. They have got used to uncompetitive pricing on liquor & tobacco, so we will tell them that we now offer renewed value.”

Note: A full report on Duty Free Philippines’ activities will appear in The Moodie Report Print Edition for May.

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