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The Daily Tribune - Silence on smuggling makes Drilon’s sin tax bill ‘unbelievable’ — Marcos

In The News
16 November 2012

By Mario F. Fetalino, Jr. | The Daily Tribune

Malacañang’s bill imposing excessive increases on liquor and cigarette products, aimed at collecting P40 billion to P45 billion incremental revenues from excise taxes, is silent on the issue of addressing the possibility of counterfeit products flooding the local market, Sen. Ferdinand “Bongbong” Marcos Jr. bared yesterday.

Marcos, at a press conference, backed up anew his colleague, Sen. Ralph Recto who was the original sponsor of Senate Bill 3299, in the latter’s assertions that the most that the government can collect from these so-called “sin” products, based on the current situation, is P20 billion and not P40 billion.

“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. What we’re saying is that the 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),” he said to reporters.

Marcos, in interpellating the acting ways and means committee chairman Sen. Franklin Drilon who is sponsoring the bill, was able to extract an admission from the latter that based on the actual data in the possession of the Department of Finance (DoF), the proposed rate hike in sin taxes on tobacco and alcoholic beverages, would only yield P16 billion from the cigarette industry and not P26.8 billion.

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

Yet, in the case of the cigarette products, tobacco manufacters posted only a growth rate of only 1.97 percent and not five to six percent as previously claimed by the DoF, in supporting their contention on the feasibility of collecting P26 billion.

Marcos took note of the fact that under Drilon’s subsitute bill, the DoF used 1.97 percent multiple as a basis which means that the most that the government could generate from industry players is P16 billion, close to earlier claims made by Recto.

“The breakdown, we will provide for it (on Monday) especially when I make the proposal on my individual amendments as to how we can collect these revenues and it would not be P26 billion. It could be up to P20 billion so as not to affect the entire cigarette industry,” he said.

“What I don’t understand is, and I’m still trying to ask them to produce is, how and where they got those figures that they’re using. I’m putting emphasis on 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, I have shown that they would not only get what they’re aiming for, they won’t also reduce the number of smokers. Aside from that, there would be smuggling,” he said.

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, it open the floodgates to illicit trade.

Smuggling in Malaysia after it imposed an increase of 365 percent betwen 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 as well.
In Brunei, they also imposed large tax increase beginning Nov. 2010 and yet 80 percent of the industry is considered “illicit,” Marcos said.

The senator said that even the United States and Canada had similar experiences where also 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,” the senator told Drilon during the Wednesday night plenary proceedings.