The Daily Tribune - Sin tax bill favoring liquors over cigars?

20 August 2012

By Angie M. Rosales | The Daily Tribune

The-Daily-TribuneThe proposed bill supposedly rationalizing excise taxes on tobacco and alcohol products or the so-called “sin taxes” is seen by most senators as merely a tact to ease out from competition other industry players.

“That’s an honest assessment of most of the senators. The bill is a reform measure but it seems to be leaning toward some and against others. That’s the problem here. It does not seem to provide a level playing field,” said Sen. Ralph Recto, chairman of the ways and means committee.

Recto seconded the sentiments aired by Senate President Juan Ponce Enrile during Thursday’s initial public hearing of his committee on the filed bills calling for the restructuring of the excise tax on alcohol and tobacco products.
Enrile described as a “very distorted system” the proposed provisions on the sharing of the higher tax burden on the said products in order for the government to raise additional revenues.

“I read the bill passed by the House (of Representatives) and I see a very distorted way of taxation here. So that to avoid this kind of distortions, we must think about it, whether we want to stay in specific regime and distort it the way it is being done. Let’s do away with that and use a system that will take into account the price in the market, the quality of the product and so on and so on and then, including the interest of government for revenue because, this is an inequitable, the system presented to us (here in the Senate) — the House bill that I have seen here. Some products are being favored against other products,” Enrile was quoted as saying at the hearing.

Sen. Ferdinand “Bongbong” Marcos Jr. rallied behind Enrile’s position further pointing out that the situation before was more or less equitable across the board, specifically on the tobacco products.

“On the first year alone, I believe is about 708 percent (increase). The figures that we’re given earlier on the fourth and fifth year puts us at 1,100 percent for the fourth year and puts us at 2,000 percent or 1,900 percent for the fifth year. Those are huge numbers, those are very huge numbers. And that’s why I’m coming at this from another perspective. If there is indeed going to be a decrease in consumption, how many people of the three million people who are dependent on the tobacco industry will be displaced? What are we going to do for them?” asked Marcos.

“We’re coming from a tobacco-producing regions and it is our duty as representatives of these people to protect them and if they’re going to be discriminated, well better for us to maybe separate from the republic.

“I can assure you gentlemen, I’m not threatening anybody here, if the Mindanaoans can do a lot of problems for this country, the northerners can do it better. We did it against the Japanese,” Enrile said.

“I’m talking to you very realistically. We are protecting our own people who will starve if we’re going to tax them too much,” the Senate President said, referring to his and Marcos’ provincemates from Northern Luzon whose known main source of income is tobacco farming.

Recto could only seek assurance from the executive in finding a doable solution on the matter.

During the said proceedings, the Department of Finance (DoF) appeared to have abandoned the House-approved bill, the version being pushed by Malacañang, in restructuring the excise tax system and now wants to revert to the original Palace proposal providing for excessively high tax increases not only for tobacco, but also for alcohol products.

Finance Secretary Cesar Purisima presented to senators the original version of the DoF-backed bill that aims to raise P60 billion in additional revenues for the government, with P30 billion coming from taxes collected from cigarettes; P19 billion from fermented liquor, which includes beer; and P11 billion from distilled spirits.

This original DoF proposal imposes tax hikes of over 1,000 percent for both cigarettes and alcohol.

The version approved by the House last June revised the DoF proposal and significantly pulled down the projected incremental revenues from excise to P31.28 billion where the share of alcohol is P4.48 billion (15 percent), while that of tobacco is P26.8 billion (85 percent).

Historically, alcohol and tobacco have always borne equal tax burden.

The revised sharing of burden is perceived to be a concession to San Miguel Corp. (SMC), perceived to control the votes of the Nationalist People’s Coalition (NPC) congressmen.

Purisima told the Recto committee that he prefers the original DoF bill that would impose a unitary tax rate for both alcohol and tobacco products to generate an additional P60 billion.

“If the Senate will give it to me, obviously being secretary of Finance, I like higher numbers and so therefore, the original bill is the preferred bill…,” Purisima said during the hearing.

The DoF proposal, which was sponsored by Cavite Rep. Emilio Abaya in the House, also favors imported cigarettes and distilled spirits over locally-produced ones.

An earlier study done by the Senate Tax Study and Research Office on the DoF proposal showed that over the years, the “excise tax burden of low-priced beers grows to about three times that of medium-priced beer and four times that of high priced beer.”
In contrast, the “magnitude” of the excise tax burden on imported spirits with the “same materials as local spirits becomes substantially lower than that of local spirits,” the Senate study stated.