MANILA (AFP) - The Philippines said Friday (Oct 6) it has dropped a tax evasion case against the country's number-two cigarette manufacturer after it was sold to Japan Tobacco to raise funds for a record 30 billion-peso (S$800 million) settlement.

Manila had accused Mighty Corp of using counterfeit tax stamps to avoid paying 37.88 billion pesos in taxes, and threatened it with criminal charges.

However in July, President Rodrigo Duterte ordered the finance department to accept a settlement, under which Mighty, which has 23 per cent of the local cigarette market, would drop out of the tobacco business.

"We could consider this case as closed. (The) government of the Philippines is 40 billion pesos richer," Justice Secretary Vitaliano Aguirre told reporters.

The company settled the case with a 30-billion-peso payment, and paid another 10 billion in taxes and penalties, he explained.

Mighty had originally offered a 25-billion-peso settlement, Aguirre added.

The company sold off its assets to Japan Tobacco International in order to meet its tax deficiencies, the finance department said earlier.

The Japanese firm, one of the world's biggest tobacco companies, whose global brands include Winston and Camel, announced on August 22 that it was purchasing Mighty for 46.8 billion pesos.

Asked to comment on the justice department decision, a Japan Tobacco spokesman in Japan said "the tax liability is an issue that should be solved appropriately between Mighty Corp and the Philippine government".