Sin taxes may be raised but only after boosting collections

The Department of Finance (DOF) is amenable to reviewing the current law on the so-called sin taxes, which could help raise additional revenues for the cash-strapped government. Finance Secretary Cesar Purisima said he will support a review of the present structure of sin taxes, which are basically levies imposed on alcohol and tobacco products.

But then, the government has to exhaust all means to improve tax collection first before embarking on any new measure to boost revenues.

“First, I want to make it clear that I support the stand of President [Benigno] Aquino [3rd] that we should first fix the leakages in the system before we go for any new tax measure,” Purisima told reporters in a briefing last month.

“Putting that aside, if you look at the sin tax law structure itself, it is designed to make it difficult for new entrants in the industry to come in because of the rate structure where it favors old cigarettes against so-called new cigarettes. And from this structural standpoint alone, to make sure there’s free competition—not only in the cigarette market—but in any market in the country, I would support down the road a review in the restructuring [of the] sin tax law as presently structured,” he added.

For her part, Bureau of Internal Revenue Commissioner Kim Jacinto-Henares said imposing new tax rates on cigarettes would depend on lawmakers and that the initiative would not come from the government’s executive agencies.

“It’s up to the legislative body how they would deal with that but as far as the President is concerned, it’s the only law that he is prioritizing is the fiscal incentives rationalization law,” she said.

“What I’m saying is, this is the priority of the President and if [sin tax law] is the priority of the legislative [branch]—it’s an independent body anyway—they can do that,” Jacinto-Henares added.

In 2004, the rate of excise taxes imposed on alcohol and tobacco products was increased through Republic Act 9334. A tax of one peso is slapped on each kilo of tobacco products and the rate is increased by 6 percent every two years starting January 2007. Any changes to this law should take effect after January 1, 2011, which is roughly four months away.

The Framework Convention on Tobacco Control Alliance said the Philippines has one of the lowest tax rates on cigarettes in Asia. The group estimates that total levies imposed on these products is 54 percent of the retail price of most brands, which includes total excise (44 percent) and value-added taxes (11 percent).

According to Asia Times, a packet of the original Marlboro sells for $8.70 in Singapore and $2.50 in Thailand, while the same packet of Marlboro “Reds” is only 0.70 cents in the Philippines—cheaper compared to Indonesia, where a packet of 20 cigarettes sells for $1, and Laos, where it sells for $1.73.

Lawmakers are recognizing this fact and a number of proposals had cropped up in recent years to help plug the widening budget deficit and, health advocates hope, curb the increasing smoking habit of Filipinos.

Senate Bills (SB) 2980 and 3191, which seek to increase the excise tax rate on sin products, were filed last year. Both proposed laws recommended a single specific rate of P14 a pack after a two-step reduction in the tax brackets from four tiers to two and from two to one. The bills also proposed a common cut-off for the net retail price of P6.50 a pack with the same temporary rates of P8 and P14 a pack on the first year.

SB 2980 set the effectivity date on January 1, 2009 while SB 2980 proposed the law should take effect on January 1, 2010.

The Finance department under the Arroyo administration said Congress should have passed these bills last year to allow the expiration of the present law in 2011 and provide for a new tax regime starting 2012.
The passage of these bills would ensure steady revenue stream for the next administration after 2010 or in the next three years.

Former Finance chief Margarito Teves had said imposing higher sin taxes will bring in P20 billion to P30 billion in additional revenue for the government in the first year of implementation, P30 billion to P40 billion in the second year, P40 billion to P50 billion in the third year and P60 billion to P70 billion annually thereafter.

But the Congress has yet to pass any bills that could help whittle the number of smokers, currently at 28 percent of adult Filipinos.

And it seems like Pinoys would be able to enjoy cheap cigarettes for a long time. –LIKHA CUEVAS-MIEL, Manila Times