‘Sin’ tax clash brewing

ORIGINAL revenue and health targets under planned “sin” tax reforms should be restored, the Department of Finance (DoF) yesterday said, as it prepares to push amendments at the Senate where legislators have also come out to criticize a committee-sponsored measure.

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“The next step is the plenary debates where specific amendments will be pushed. The DoF will work with the Senate to help ensure ‘sin’ tax reforms achieve the original revenue and health objectives,” Finance Secretary Cesar V. Purisima said in a text message.

Among the legislators being eyed to push for the changes are Senators Franklin M. Drilon and Miriam Defensor-Santiago, Finance Assistant Secretary Ma. Teresa S. Habitan said.

The department is deeply unhappy about Senate Bill (SB) 3299, presented by ways and means committee chairman Senator Ralph G. Recto on Monday. The measure is a departure from the Finance version and even tamer than the compromise House Bill (HB) 5727 passed in June.

SB 3299 provides two tax tiers for fermented liquors and four for distilled spirits. Cigarettes, meanwhile, will be categorized into three tiers, to be reduced to two by 2020.

The DoF pushed for a single tier, so that one tax rate would be levied on all products regardless of retail price. A four-tier classification is currently set in the National Internal Revenue Code, opposed by the department since it allows users to shift to lower-priced alcohol and cigarettes instead of cutting down their consumption.

SB 3299, moreover, proposes an 8% increase in tax rates every two years. The biennial hike falls to only 4% by 2020. HB 5727 mandated an 8% increase every two years until 2025, while the DoF wanted an automatic indexation to inflation.

“It is really unfortunate that the good senator set aside all reform objectives of the ‘sin’ tax proposal, further complicating what is already a complex structure and putting up more barriers against a level playing field for old and new brands,” Ms. Habitan said.

The department initially hoped to raise P60 billion in incremental revenues through the “sin” tax bill, but this was cut to only P30 billion because of concessions made in HB 5727. This revenue target has been whittled down even further to just P14 billion with SB 3299.

Senators were also critical of SB 3299.

“I am gobsmacked — speechless with amazement — at the committee report. It bears no recognizable resemblance to my bill. It is an abject surrender to the very rich and very powerful tobacco and alcohol lobby,” Ms. Santiago said in a statement.

She was the author of two bills which were considered by Mr. Recto’s ways and means committee. She proposed a unitary system, similar to the DoF.

Senator Sergio R. Osmeña III also said he did not sign the committee report on SB 3299 because he was dissatisfied with the proposal.

Senators Alan Peter S. Cayetano, Panfilo M. Lacson and Mr. Drilon all vowed to introduce amendments during the floor debates, specifically to reduce the tiers and to increase the tax rates.

Malacañang also backed the move to amend the Senate bill and promised to continue talks with legislators until they came to a satisfactory version of the “sin” tax bill.

Meanwhile, British American Tobacco (BAT) lauded the abolition of the price classification freeze in the SB 3299. The law currently allows old brands to be taxed based on their 1996 retail prices, while new brands are taxed based on current prices.

“SB 3299 effectively levels the playing field… we are supportive of this component of the bill,” BAT said in a statement.

“However, we pride ourselves on being good corporate citizens… It is a well-known fact, that the excise revenues generated by the tobacco industry in the Philippines have not kept pace with the growth in other sectors over the years…,” it qualified.

Civil society groups yesterday also continued to lambast Mr. Recto for ignoring the health impact of the “sin” tax bill.

“The… youth and the poor will still have easy access to cigarettes and alcohol, while the many tiers mean that current users will not be affected by tax increases since they can just shift to cheaper products,” HealthJustice said in a statement.

Mr. Recto remained unavailable for comment yesterday. –DIANE CLAIRE J. JIAO, Senior Reporter with reports from Kathryn Mae P. Tubadeza and Monica Joy O. Cantilero, Businessworld