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)

Effectivity of BIR issuances

Effectivity of BIR issuances
by: Rachelle Ann C. Baod

TAXPAYERS and practitioners alike were recently bombarded by numerous and controversial rules and regulations from the Bureau of Internal Revenue (BIR). These issuances cover a wide variety of subjects and affect various types of taxpayers.

Most of these issuances did not even go through public hearing. It is more often the rule, not the exception, that taxpayers are caught unaware of the new requirements imposed upon them.

Not surprisingly, most taxpayers are now confused or ambivalent about how to implement the changes brought about by the new issuances.

On top of implementation and operational issues, taxpayers are also not clear as to when the issuances take effect and the periods covered by the issuances.

For instance, Revenue Regulations No. (RR) 14-2012 provided that the regulations shall take effect 15 days following complete publication in a newspaper of general circulation in the Philippines.

The effectivity clause, however, of RR No. 12-2012, Revenue Memorandum Circular (RMC) Nos. 77-2012, 75-2012, 73-2012 and 65-2012 provided that the same shall take effect immediately.

(Read Full Story Here)

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.

BIR files tax evasion raps vs gold trader

by Ina Reformina, ABS-CBN News

Posted at 11/29/2012 2:06 PM | Updated as of 11/29/2012 2:06 PM

Originally Posted Here

MANILA, Philippines -  A gold trader was charged with tax evasion before the Department of Justice (DOJ) for underdeclaring his income from 2006 to 2009 and failure to pay the appropriate income taxes.

Charged by the Bureau of Internal Revenue (BIR) was Francois Joseph Xavier Rast, proprietor of Rast Metalor Phils., with business address at VFP Bldg. II, Veterans Center, Taguig, for a total tax deficiency of P558.03 million.

BIR Commissioner Kim Henares said Rast sold to the Bangko Sentral refined gold and silver amounting to P118.15 million in 2006, P209.54 million in 2007, P306.93 million in 2008, and P238.06 million in 2009, or a total amount of P872.68 million, but failed to declare his income. 

"A comparison of the gross income he declared in his tax returns with the net payment he received from BSP in the years in question revealed that he grossly underdeclared his income by more than 30%," the BIR said, in a statement. 

The case against Rast is the 137th filed by the BIR under the Run After Tax Evaders (RATE) program under the Aquino administration.

BIR still going after Pacquiao

Philippine Daily Inquirer

1:38 am | Monday, November 26th, 2012

Originally Posted Here

GENERAL SANTOS CITY—The Bureau of Internal Revenue (BIR) in Central Mindanao says it is not giving up on its case against world boxing champion and Sarangani Rep. Manny Pacquiao for his failure to answer the agency’s summonses and submit his 2010 tax documents.

Although the city prosecutor dismissed the case against Pacquiao on Oct. 12 citing the BIR’s failure to personally serve its summonses, the tax agency has filed an appeal.

Regional Director Rozil Lozares said the agency would “exhaust all legal remedies available just to overturn the decision of the City Prosecutor’s Office in Koronadal City.”

In his motion for reconsideration, Eric Diesto, chief of the legal division of BIR Region XII, assailed the prosecutor’s resolution, saying BIR representatives failed to personally serve the subpoena on Pacquiao because access to him was very limited. All matters regarding BIR transactions were being handled by the boxer’s accountants.

The subpoena was served twice but Pacquiao was not around, Diesto said.

Diesto admitted that in February, Pacquiao sent two lawyers and two accountants to clear up his problem with the BIR.

The BIR said the case it filed in March was not a tax evasion case but simply one of a “failure to obey summonses.”

But Arnold D. Cruz, officer in charge of the Prosecutor’s Office in Koronadal City, threw out the BIR’s case, saying it was “absurd to hold the respondent liable for neglecting to obey a subpoena which he did not receive at all in the first place.” Aquiles Z. Zonio, Inquirer Mindanao

Originally posted: 8:42 pm | Sunday, November 25th, 2012