The Daily Tribune - Drilon’s sin tax bill bared using flawed data

15 November 2012

By Angie M. Rosales | The Daily Tribune

The-Daily-TribuneOn the eve of voting on third reading of the Palace-backed revamped sin tax measure of President Aquino’s ally Sen. Franklin Drilon, the measure continues to be assailed by senators for its unrealistic bloated figures, with Sen. Ferdinand Marcos Jr. pointing out the “substitute” bill will only realize P16 billion and not over P26 billion incremental revenues from the tobacco industry.

Marcos corroborated earlier claims made by Sen. Ralph Recto that the Department of Finance (DoF)-fed the information to support the P40-billion target in increased revenues was based on data geared toward the collection of only P16 billion from tobacco products and not P26.8 billion under the Drilon bill. Marcos likewise raised the issue that some DoF figures in the now aborted P60 billion original proposal that Recto called unrealistic were recycled in the bill.

As he took his turn in interpellating Drilon, who sponsored Senate bill 3299, Marcos noted computations that brought about the P26.87 billion added revenues were based on an assumption of a growth rate of five to six percent in the output of the tobacco sector in contrast to the current growth rate based on actual data of the industry presented during the hearings held under the Senate ways and means committee’s stewardship of Recto, that showed a mere 1.97 percent growth.
“So the point is, it will not yield this incremental revenue on that assumption?” Drilon, acting ways and means chairman, asked to which Marcos answered in the affirmative.

“So we must probably increase (further) the rates,” Drilon remarked. “What I am saying is that we should stop using the figure of P26.87 billion potential incremental revenue from tobacco. It should be P16.5 billion knowing that it’s the actual rate, why do we continue to use the five percent as the multiple?” asked Marcos.

Drilon explained that the difference in the amount lies in the fact that in the model presented by the DoF, it did not take into account the frontloading of production and used the growth rate at six percent to arrive at the 2013 baseline for removals, meaning the volume of products that has come out of the plants of tobacco manufacturers that year.

“To explain where I’m coming from, I don’t think anyone is going to dispute the fact the government should find all ways possible to increase their revenues and collections from taxes and those who have an interest in the tobacco industry are amenable to play part in that and so we are examining to see if in fact the proposals that are being shown us or made will get to that because there will be a sacrifice that will have to be paid by those in the tobacco industry. And if the sacrifice that we are going to pay is commensurate, if indeed the sums that are being given us, perhaps we can agree. But there seems to be a question as to whether or not despite the disruptions that will effect from this new measure, perhaps it will not still bring us to the numbers that we are saying they will and this is one of the examples that I would like to bring to your attention,” Marcos pointed out.
“If you’re using the wrong rate of growth, you will come up with the wrong answer...the figure P26.87B becomes inaccurate one,” he added.

“If the gentleman is saying that if we use the actual, empirical growth rate, we will only realize P16 billion, well so be it, we’ll only realize P16 billion and we just have to sacrifice the universal healthcare needs in exchange for less difficulties to tobacco farmers,” Drilon said.

Marcos cautioned his colleague against insisting on the bloated assumptions of the DoF, saying that the planned increase in taxes of so-called “sin” products including liquor and tobacco products should be tempered to make the revenue targets “attainable, more reasonable and fair to the affected stakeholders in the tobacco and alcohol industries.”
“We should look at it (DoF figures) more carefully because if the assumptions are wrong the people will be made to bear unreasonable (burdens),” he said.

Drilon assured Marcos and Recto he would be willing to accept corrections in the bill during the period of amendments.
Senate President Juan Ponce Enrile also echoed the same concern, pointing out the possible impact of steep cigarette tax hikes on the families of farmers in tobacco producing regions.

“Like Senator Marcos, I have an interest in protecting and ensuring that the people’s interests are not hurt (by this bill) even if I am in favor of raising taxes on sin products to protect the health of our people,” Enrile said.
Furthermore, the Senate chief who is a known tax lawyer, noted that the bill being defended by Drilon will likely pave for the flooding in the market of foreign manufactured cigarettes over locally produced tobacco products.

Still, the Senate President assured that senators would vote to pass the measure even as he asserted his “moral duty to protect the people” in the tobacco-producing regions.