Silka Papaya Soap COO Evades Taxes to Support Lavish LIfestyle

In his Facebook account, Jannsen Co brags about buying a
Ducati 991 and billing it as "company expense".
The cost? Php 3 Million.

Former employees at Cosmetique Asia Silka Papaya say that their Chief Operating Officer Jannsen Co's lavish lifestyle is the reason behind their low wages and the company's Php 1.5 Billion tax evasion.

Since 2008, Silka Papaya has been under reporting its sales by as much as 50%!

According to its Financial Statements from 2007 to 2011, Cosmetique Asia Silka Papaya’s Net Sales amounted to P2,661,288,237.  But according to market research data from a reputable Market Research Firm, Silka Papaya's actual net sales amounted to P 4,490,682,515.

BUT SILKA PAPAYA PAID ONLY PHP 15 MILLION IN TAXES!!!

The total estimated under payment of basic tax is around P350 Million and the total estimated potential deficiency in taxes including penalties may range from P600 Million to P700 Million.

But that's just basing the tax deficiency on market research data from large supermarket chains and if we were to include sales made through small stores, the total tax deficiency of Silka Papaya may go over some Php 1.5 Billion!

The BIR seems to have completely overlooked Silka Papaya despite the dubious Financial Statements it has been submitting since 2008.

Silka Papaya Reported Fake Net Sales Figures from 2008 to 2011

Since 2008, Silka Papaya has been reporting unusual Net Sales Growth which is uncharacteristic for its market.

In 2008, Silka Papaya achieved Net Sales of P365,034,832.
In 2009, its Net Sales jumped by 14.4% to P426,881,955.
In 2010, Silka's Net Sales increased to P628,327,183, jumping by 32%.
In 2011, Silka managed to surpass its Net Sales again, reaching a 36.8% increase with its Net Sales at P994,928,845.

Silka's Net Sales Growth goes far beyond the norm, something easily seen when it is compared with the Net Sales of other companies.


Net Sales of Cosmetique Asia's Silka Papaya Soap grew from P365,034,832 in 2008 to P994,928,845 in 2011 -- achieving a Net Sales Growth of 272% in a span of just 3 years!  It's incredible that Silka Papaya Soap's Net Sales grew by an average of 90 percent per year!


In 2008, Johnson and Johnson reached Net Sales of  P 2,374,479,381 and in the following year, 2009, its Net Sales contracted to P 2,032,118,636 -- a decrease of 14.4%.

In 2010, Unilever achieved net sales of  P35,735,971,982 and in 2011, its Net Sales went up to  P38,859,784,456, representing an increase of 8.74%.

In the matrix above, you will note that Cosmetique Asia's Net Sales growth increased 14.4% from 2008 to 2009, 32% from 2009 to 2010, and 36% from 2010 to 2011.  Silka Papaya's Net Sales Growth which had three consecutive years of growing by leaps and bounds -- an incredible feat, indeed.

On the other hand, Colgate Palmolive's Net Sales went down 28 percent in 2009, increased by 20 percent in 2010, and decreased again by 5.2 percent in 2011.

Silka Papaya Reported Fake Cost of Sales

It is unbelievable that a company would spend Php 800 Million in 2010 just to make Php 100 Million!  Silka Papapaya has been reporting ridiculous figures since 2008 and it is a wonder why the BIR didn't detect the ruse.

In 2008, Cosmetique Asia Silka Papaya declared its Cost of Sales at P273,335,746.  With its Net Sales at P365,034,832, its Gross Profit amounted to P91,899,086 -- a gross profit rate of 25%.

In 2009, it declared its Cost of Sales at P324,508,893 and Net Sales at P426,881,955, coming out with a Gross Profit of P102,373,062 -- a Gross Profit of just 24%.

In 2010, Cost of Sales was at 469,298,415 and Net Sales was at P628,327,383, its Gross Profit was at P159,028,768 or again, just 25%.

In 2011, Cosmetique Asia Silka Papaya's Cost of Sales nearly doubled to P833,597,551! It's Net Sales was at P994,928,845 and its Gross Profit was at P161,331,294, making its Gross Profit Rate EVEN SMALLER at 16%!

The norm for cost of sales is at 40% or 50% Gross Profit, compared to Cosmetic Asia Silka Papaya which has a Gross Profit rate of 25% to 16% at its lowest.

Looking at its unusually rapid and consistent Net Sales Growth at 90 percent per year, its unusually high Cost of Sales, and its peculiarly low Gross Profits, Cosmetique Asia Silka Papaya has all the signs of doctoring its financial figures to evade taxes by fooling the BIR into thinking its income is really small.

Mo Twister as Silka Papaya's Brand Champion

Being a tax evader is just like stealing and as far as getting away

with stuff that isn't yours, we guess Cosmetique Asia Silka Papaya

will be in perfect company with DJ Mo Twister.

Find out about the Silka Papapaya Scandal Here

A Typical Salaried Filipino Employee's Lament Over Taxes

We've often heard of the lament that in the Philippines, the rich get richer and the poor get poorer.

You'd think that the number of poor people increase because they have more children, who in turn, also become poor.

Although true in a number of cases, another fact that isn't getting as much attention is that the rich actually pay less taxes than most salaried employees. 

As a salaried employee, I earn about P50,000 a month but after income tax deduction and other mandatory deductions amounting to around P12,000, my take home pay is only P38,000 a month.  About 24 percent of my income goes to paying taxes!

Twelve thousand pesos is a lot of money to "lose" every month to taxes and every time I look at my pay slip, I can't help but get a little angry with thoughts of other ways I could have spent that money.

With that money, perhaps my husband and I could have some savings, and perhaps we could invest those savings in a small business -- earning us more money as well as create employment for our less "prosperous relatives".

But it's a useless thought, or so my husband says.  He points out, "After all, that money gets deducted from your salary even before it gets to your hands."

Even though, my husband and I are both working, we actually just barely make both ends meet and we hardly have any savings.

Most of our money goes to paying for a housing loan, our kid's education, and a car loan.  Some might think this is maluho or frivolous spending on our part -- considering the many ways that we can settle for less.  Like, for instance, what if instead of paying for a housing loan in a subdivision, we just rented an apartment somewhere in Manila?  What if instead of sending out children to what we think is the best school for them, we settled for a less costly school?  What if we commuted to work using public transportation instead of driving ourselves in a car?

Sure, we could do that, but with the way things are in Metro Manila, it seems to us we'd be trading money for safety and peace of mind just so that we could have some savings.

Having graduated college and earned masters degrees as well as climbed up the corporate ladder, my husband and I expect to afford some degree of security as well as convenience in our lives.

If only we could really count on the government to really spend our taxes the right way and deliver services at the right quality, I don't think we'd need to live in a gated subdivision (if only we could count on our police to prevent crime instead of causing it) or perhaps we could just send our kids to public school (if only it were up to world standards) or perhaps ride the bus/train to work (if only we didn't have poorly managed as well as poorly maintained roads).

On the other hand, companies like Cosmetique Asia Silka Papaya aren't taxed in the same way that salaried workers are taxed.  Companies are taxed based on their net income (which is Gross income minus expenses/losses) and Cosmetique Asia Silka Papaya, based on public records that we found, has manipulated both it's real income as well as expenses.

What Cosmetique Asia basically did was to declare a lower income instead of its real income.  It's public records state that it earned close to Php 1 Billion pesos, but according to data in a Nielsen study as well as estimations of sales from small stores it's real income could be as high as Php 2 Billion pesos.

Moreover, our investigation into Cosmetique Asia Silka Papaya indicates that it has been over reporting its Cost of Sales or expenses.  Far from the norm set by the Cost of Sales of companies with products similar to Silka Papaya, the company declared in its financial statement that its cost of sales is 75% of its Net Sales -- they want the entire country to believe that they are spending 750 million pesos a year to earn 250 million pesos!

Most other companies cost of sales is only at 50% of their Net sales!

What is even worse is that Silka Papaya further reduces their Net Income by subtracting costs for advertising and other marketing costs.

This is how, Cosmetique Asia managed to justifying payment of just P15 Million Pesos after earning about Php 2 Billion!  P15 Million pesos isn't even 10 percent!!

Cosmetique Asia's Silka Papaya Pads its Cost of Sales

In the first two parts of our expose on Cosmetic Asia and Silka Papaya which you'll find here and here, we revealed the company's astounding Net Sales growth.  In three years from 2009 to 2011, Cosmetic Asia and Silka Papaya Net Sales expanded by 272%, from P365,034,832 in 2008 to to P994,928,845 in 2011.

Averaging out its Net Sales over 3 years, Cosmetic Asia unbelievably posted an average of 90 percent annual increase in Net Sales.  For Tax Examiners, this alone could be a tip off that a company may have been under reporting its Net Sales to hide its real income and in the process, dodge paying the right taxes.

Of course, it could really happen that a company can experience enormous Net Sales. 

What would tend to confirm if the Net Sales growth is real and not simulated is if the source of this sales growth can be traced to the contraction of the Net Sales of similar and alternative products.  Alternatively, one could look for signs that the market has grown, such as if more people are buying whitening soaps or if the market has expanded geographically in areas where skin whitening products were not previously being sold.

However, if market data doesn't show that Cosmetique Asia Silka Papaya's Net Sales Growth isn't coming from the contraction of a competitor's market share or from market expansion, it could be a strong indication that it isn't correctly reporting its Net Sales.  To put it bluntly, it is an indication that Cosmetique Asia Silka Papaya is making up its Net Sales figures!

This is just one of several methods for evading taxes!

Another indication is its extraordinarily high Cost of Sales which is at 75% to 86% of its Net Sales!

When you talk about taxes, in essence, what is really being taxed is an individual's Net Income or the individual's income after expenses have been deducted.

In Cosmetic Asia Silka Papaya's case, apart from under stating its real net sales, it seems it is also overstating its expenses or Cost of Sales to make it appear that its Net Income is smaller than what it really is.  By padding its Cost of Sales, Cosmetique Asia decreases its Net Income making the taxable amount smaller and the resulting tax computation even smaller.

In 2008, Cosmetique Asia Silka Papaya declared its Cost of Sales at P273,335,746.  With its Net Sales at P365,034,832, its Gross Profit amounted to P91,899,086 -- a gross profit rate of 25%.

In 2009, it declared its Cost of Sales at P324,508,893 and Net Sales at P426,881,955, coming out with a Gross Profit of P102,373,062 -- a Gross Profit of just 24%.

In 2010, Cost of Sales was at 469,298,415 and Net Sales was at P628,327,383, its Gross Profit was at P159,028,768 or again, just 25%.

In 2011, Cosmetique Asia Silka Papaya's Cost of Sales nearly doubled to P833,597,551! It's Net Sales was at P994,928,845 and its Gross Profit was at P161,331,294, making its Gross Profit Rate EVEN SMALLER at 16%!

To clarify things further, Cosmetic Asia Silka Papaya is claiming to have spent over P800 Million to make a gross profit of P160 Million.  That's like spending 80 pesos just to make 15 pesos at the end of the day -- which, if you asked any businessman, is hardly worth the effort and expense.

Further illustrating how incredulous Cosmetic Asia Silka Papaya's Gross Profit is, the gross profit rates of other larger companies are at 50% -- which is most likely the norm.

(In the next post, we will compare Cosmetique Asia Silak Papaya's Gross Profits with companies like Johnson and Johnson, Unilever, and Colgate Palmolive.)

Comparing Cosmetique Asia's Silka Papaya Soap 90% Average Annual Net Sales Growth With Other Companies

In our previous post, we showed how the Net Sales of Cosmetique Asia's Silka Papaya Soap grew from P365,034,832 in 2008 to P994,928,845 in 2011 -- achieving a Net Sales Growth of 272% in a span of just 3 years!

It's incredible that Silka Papaya Soap's Net Sales grew by an average of 90 percent per year!  And as they say, if it's too good to be true, it usually is.

Of course, the owners of Cosmetique Asia can say that their Net Sales Growth was because of the superiority of their product's quality as well as their intense and immensely successful marketing campaign.

Yeah, right!

Just to give you an idea of what real Net Sales performance are like for most companies, lets compare Cosmetique Asia Silka Papaya's Net Sales Growth performance with companies like Johnson and Johnson, Unilever, and Colgate Palmolive -- all of which have products similar to Cosmetique Asia.

In 2008, Johnson and Johnson reached Net Sales of  P 2,374,479,381 and in the following year, 2009, its Net Sales contracted to P 2,032,118,636 -- a decrease of 14.4%.

In 2010, Unilever achieved net sales of  P35,735,971,982 and in 2011, its Net Sales went up to  P38,859,784,456, representing an increase of 8.74%.

Furthermore, if we want to see how Cosmetique Asia's Silka Papaya's Net Sales Performance compares with Colgate Palmolive year to year.

In the matrix above, you will note that Cosmetique Asia's Net Sales growth increased 14.4% from 2008 to 2009, 32% from 2009 to 2010, and 36% from 2010 to 2011.  Silka Papaya's Net Sales Growth which had three consecutive years of growing by leaps and bounds -- an incredible feat, indeed.

On the other hand, Colgate Palmolive's Net Sales went down 28 percent in 2009, increased by 20 percent in 2010, and decreased again by 5.2 percent in 2011.

One thing you'll notice with real net sales growth is that fluctuates, increasing one year and decreasing one year.

Cosmetic Asia's Silka Papaya Net Sales growth is improbable and a sure tip-off that something screwy is happening with its books.

Either it really is experiencing a consistent Net Sales surge because of successful marketing and advertising (something that can be correlated to marketing and advertising spending), or it has been under reporting its real sales figures for years but is now just gradually adjusting it to reflect more accurate figures.

A research paper by Rosario Maranasan on Tax Evasion in the Philippines, a fellow at the Philippine Institute of Development Studies, describes the various ways companies and individuals cheat on their taxes:

Common practices of tax evasion include: under reporting of income, overstatement of expenses, use of fictitious receipts, the keeping of double sets of books, false or fictitious entries in books, fictitious transactions in the name of dummies, non-recording of sales, and others.

What Cosmetique Asia Silka Papaya is probably doing is under reporting its real Net Sales and by doing so, is reducing its gross income -- which is part of the basis for determining what it really owes in taxes.

Up Next: Cosmetique Asia Silka Papaya's Extraordinarily High Expenses Covers Up Its Real Income

Silka Papaya's Net Sales Reach Nearly One Billion Pesos

Go to any grocery and sari-sari store anywhere in the country, chances are that you will find Silka Papaya - a brand of skin whitening soap manufactured by Cosmetique Asia Corporation.

It is one of the most popular skin whitening soaps in the market today.

And its Net Sales Growth is nothing short of astounding!

According to its own Financial Statement, Cosmetique Asia Silka Papaya achieved Net Sales of P994,928,845.17 in 2011! Close to a BILLION PESOS in sales!!

If that weren't amazing enough, looking at the annual growth of its Net Sales from 2008 to 2011, Cosmetic Asia's seems to be expanding at a blistering rate.

In 2008, Silka Papaya achieved Net Sales of P365,034,832.  

In 2009, its Net Sales jumped by 14.4% to P426,881,955.  

In 2010, Silka's Net Sales increased to P628,327,183, jumping by 32%.  

In 2011, Silka managed to surpass its Net Sales again, reaching a 36.8% increase with its Net Sales at P994,928,845.

To most people, this huge growth in Net Sales would only appear that the company is experiencing great success.

But to tax examiners, it could be a tip off that something funny is happening and IT IS.

(Our Next Post: Comparing Cosmetique Asia's Silka Papaya Soap's Net Sales Growth With Other Companies)

Kim Henares, Tax Sheriff

Written By: Karen Lema, Reuters
Originally Posted in Interaksyon

The Philippines' chief tax collector is constantly thinking about targets. Sometimes she picks up an assault rifle and hits them.

In July 2010, newly-elected President Benigno Aquino III made Kim Henares commissioner of the Bureau of Internal Revenue (BIR) because he wanted a tough tax sheriff - and he got one who's taking aim at the country's legion of tax cheats.

Aquino gave Henares presidential guards, but the tax lawyer and accountant said "I should know how to shoot their guns, just in case".

The president, a gun enthusiast, gave her lessons at shooting ranges. The 52-year-old Henares, who packs a pistol, now can wield an M-16 and SG552 Commando.

Her no-nonsense approach appears to be helping pull in more tax, which is pivotal to meeting a government goal - getting rating agencies to award the Philippines investment-grade status.

Historically, tax collection has sometimes been a "let's make a deal" game between taxpayers and bribable officials.

Henares, BIR's deputy commissioner from 2003 to 2005, has been chasing evaders and crooked bureaucrats to clean up collection and the image of the bureau, perceived to be one of the country's most corrupt institutions.