Malaya - Drilon’s sin tax version ignores smuggling: Marcos

16 November 2012

By JP Lopez | Malaya

SEN. Ferdinand Marcos yesterday said the substitute bill of Sen. Franklin Drilon imposing steep increases in taxes on liquor and cigarette products is silent on the issue of addressing the possibility of counterfeit products flooding the local market.

Marcos, in a press conference, said a decrease in the volume of consumption does not represent a decrease in the number of smokers “but a shift in patronizing smuggled or counterfeit cigarettes (and other products).”

“The price elasticity of demand, which means that regardless of how much increase will be imposed, will not create a significant impact on the (volume) of consumption. That’s not how we see it,” he said.

Under Drilon’s “substitute” bill, the government is eyeing to generate P13 billion from fermented liquor or the beer industry, P7 billion from the distilled products, and P26.8 billion from the tobacco manufacturers.

“What I don’t understand is, and I’m still trying to ask them to produce how and where they got those figures that they’re using. I’m putting emphasis on in my interpellation not because I do not want the government to realize the (projected) collections but to highlight the fact that they will not achieve their targets using unsubstantiated statistics,” he added.

“And if we look at it properly, naipakita ko na hindi lamang sa makukuha yung kanilang pinapangarap at hindi rin mababawasan ang naninigarilyo at bukod pa run magkakaron pa ng karagdagang smuggling,” he added.

In his presentation, Marcos warned colleagues that “if we are going to increase taxes, there will be a greater motivation for certain sectors to start smuggling cigarettes and this will cause all kinds of problems.”

Data collated by the senator showed that based on the experience of some neighboring countries that had imposed higher excise taxes, the floodgates to illicit trade were opened.

Smuggling in Malaysia after it imposed an increase of 365 percent between 2001 to 2009 showed a jump in illicit trade activities by 150 percent between 2005 to 2009 and yet, the increase in smoking incidence continued.

Brunei also imposed a large tax increase beginning November 2010 and yet 80 percent of the industry is considered “illicit,” Marcos said.

He said the United States and Canada had similar experiences, where prevalence of smokers continued despite the imposition of higher taxes and the volume of illegal trade increased.

“The very same people who were doing it in Brunei, they can do it here, too. You will not get the revenues, you will not get the lessening of smokers. That is the problem, we have with illicit trade,” he told Drilon during Wednesday night plenary proceedings.

“The point beiing, it brings us back to cigarette smokers (that they) will not stop smoking, they will just find away to buy cheaper tobacco. The smugglers will be more than willing to provide the cheaper products,” he said.

But Drilon said that there is no correlation between increase in price and rise in smuggling incidence, emphasizing that the matter of addressing the problem is the function of effective law enforcement.

“For smuggling to be successful, the smuggler must have a wide network. This indicates that this fear of smuggling is not that accurate,” Drilon said.

Marcos, however, said that the government does not have enough safeguards to address smuggling in the bill as the measure is silent on this issue.

“Yun ang mga problema, hindi binabanggit sa Drilon bill. Kailangan pag-usapan yan dahil kasama yan sa calculation. At sinasabi nga namin hindi nila sinama. Kaya palagay ko kaya matataas ang kanilang mga numero, kaya hindi namin tinatanggap yung calculation nila sa collection at consumption lalo na sa smuggling,” he said.

Marcos said he does not exclude the possibility that it was deliberate on the part of the Executive not to factor in the smuggling aspect in the bill, simply because it’s a tough task to deal with.

“And as I showed in my presentation yesterday, naipakita ko – yung mga display sa ibang bansa, yung kanilang karanasan, hindi na nga halos kailangan ng paliwanag – tinaas yung excise tax, bumaba ang collection, tumaas yung illegal importation o yung smuggling,” he said.

Marcos has also cornered Drilon on what he said were bloated figures and wrong assumptions in raising revenue from steep increases on excise taxes for cigarette.

Drilon commended Marcos for doing his homework and research. He “studied the issue very well,” he said during Wednesday’s interpellation.

On several occasions, Drilon told Marcos that “we may not agree, but we accept (Marcos’ points) for the purposes of looking at amendments.”

“We are willing to listen to amendments to ascertain erroneous assumptions. We are not perfect. We may have miscalculated resulting in inaccuracies,” Drilon admitted.

Marcos has pointed out that Drilon’s substitute bill erred in using the DoF assumption of 5 percent growth in consumption of tobacco, which is tied to the growth of the economy as 2013 baseline.

He said that the actual empirical data is 1.97 percent based on the historical growth rate of the tobacco industry. From this data, using the House version of the bill that has been adopted by the substitute bill, the projected incremental revenue would be P16.54 billion.

He said that since the substitute bill uses 5 percent growth rate, which is just an assumption without any basis, the incremental revenue would be P26.87 billion.

“We have here, in front of us, the recalculation because at the very beginning, during the hearings, it was made clear that one of the assumptions that was being made for the calculation of the incremental revenues was tied to the expected GDP growth rate, 5 to 6 percent. I think the number that was used was 5 percent,” Marcos said.

“Now, we asked the industry that according to their empirical data, what in fact was the rate of growth of the tobacco industry. And the number they came up with, and they have been able to prove it by showing us empirical data at 1.97 percent,” he added.

To correct the “flawed assumptions and bloated figures” in the sin tax revenue projections, Marcos moved to change the calculations “para maging mas totoo ang ating mga ginagamit na numbers.”

He said he will move to correct the DOF “miscalculations” during the period of amendments when the Senate resumes plenary debates on the revised P45-billion sin tax bill next week.