The Philippine Star - Bongbong to correct ‘miscalculations’ in sin tax revenue projections

19 November 2012

By Christina Mendez | The Philippine Star

Featured-Image-Philippine-StarMANILA, Philippines - Sen. Ferdinand Marcos Jr. has vowed to push today key amendments to correct “flawed assumptions and bloated figures” in the sin tax revenue projections that the Department of Finance has submitted to justify proposed higher taxes on cigarettes and liquor.

The Senate is set to pass the Sin Tax bill on second and third reading in one sitting today after President Aquino had certified it as urgent.

Marcos said he will move to correct the DOF “miscalculations” during the period of amendments.

Last week, Marcos cited during interpellations with Sen. Franklin Drilon the DOF submissions where the assumed growth of the consumption of tobacco “was indexed, or was tied to, the expected growth rate of the economy... at five percent or six percent.”
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Marcos presented his own study showing a recalculation of that growth rate to what is the historical growth rate of the tobacco industry, in terms of consumption, at 1.97 percent.

“This is the actual empirical data and from that empirical date, we have transposed the rate of increase... at the calculation of 1.97percent,” he said.

The rate would peg the incremental revenue from tobacco taxes at P16.54 billion instead of P26.87-billion targeted revenue in the DOF proposal that was based on five percent growth, Marcos said.

Drilon commended Marcos for “doing his homework and studying the issue very well.”

Drilon conceded that if Marcos was correct that the DOF assumptions are “inaccurate and, therefore, the resulting rates are not valid to achieve the purpose for which the bill is being presented.

“We are willing to listen to proposed amendments of the gentleman to correct whatever errors there are and project it properly so that we can achieve the objectives we are looking for,” he said.

Drilon said he was willing to listen to Marcos’ proposed amendments “in order that what were asserted to be erroneous results on the basis of certain assumptions can be corrected at the period of individual amendments.”

However, Drilon said the initial estimates were based on 2010 removals, while all the other sin tax versions, including that of the Senate ways and means committee, were based on 2011 removals.

“Why did we use the 2010 estimates?” he said.

“It is because there was no available data for 2011 at that time and number two, we expected that in 2012, the bill would become law. Obviously, that did not happen. So the six percent is only to get the 2013 baseline for removals.”

Marcos said empirical data from the tobacco industry, based on a recalculation that Sen. Ralph Recto had requested, showed “a growth rate of 1.97 percent, not five percent because when using the five- percent growth rate, it yielded this incremental revenue from cigarettes as P26.87 billion.”

“Those of us who have an interest in the tobacco industry are amenable to play our part in that,” he said.

“And so we are examining to see if, in fact, the proposals that are being made will get to that because there will be a sacrifice that will have to be paid by those in the tobacco industry.”

Less votes

Senators were warned they could lose as many as a million votes in the May 2013 elections from the tobacco-growing provinces of Northern Luzon if they vote for the passage of the Sin Tax bill.

La Union Rep. Victor Ortega, Northern Alliance bloc head in the House of Representatives, said senators should think twice in voting to approve Senate Bill 3299, the Sin Tax Reform bill.

It would be the most important election issue in tobacco-producing provinces, he added.

Ortega said it was expected that tobacco farmers would reject reelectionist senators voting for the bill.

“Of course they (tobacco farmers) will support those who have been considerate of their plight in making a decision on the Sin Tax bill,” he said.

“It is but natural also for these tobacco farmers to say they will reject senatorial bets who will support a sin tax bill version that will adversely affect the farmers’ livelihood.

“On the other hand, you can expect these farmers to support candidates who sympathized with them in the fight against hefty excise tax rates,” he said.

The voting power of tobacco farmers should not be dismissed as the eight major tobacco-producing provinces are a vote-rich region with at least 4.5 million voters during the last elections, he added.

Ortega said the Ilocos region alone, which comprises the provinces of Ilocos Norte, Ilocos Sur, Pangasinan and La Union, has 300,000 tobacco farmers, he added.

“This could easily translate to one million votes if voting members of their families are included,” he said.

Ortega said the bloc at the House will await the final tax version of the Senate to guide them in deciding their next move.

“We will see how the Senate will act.,” he said.

“We will wait and see which version will prevail. We hope it will be much better than the House version.”

Another lawmaker from Northern Luzon said they have no choice but to support the stand of their constituents against the senators who will vote in favor of the excise tax bill.

“Or we might be rejected too in the coming elections,” the lawmaker said.

Nueva Vizcaya Rep. Carlos Padilla, one of the 21 lawmakers who voted against House Bill 5727, said the excise tax bill is certainly an election issue in tobacco-producing provinces.

“It is inevitable that these affected sectors during the May 2013 elections will manifest their unfavorable sentiment against reelectionist senators who will support a tax bill that imposes drastic and immediate increase in the rates,” he said.

Padilla said he and the other lawmakers who voted against HB 5727 are fighting for reasonable excise tax rates, and a considerable transition period to avoid job displacements.

“A drastic hike in excise tax rates will be inimical to the tobacco industry which provides livelihood to so many tobacco farmers and other industry workers, and even small entrepreneurs,” he said.

Isabela Rep. Rodolfo Albano said tobacco farmers and their leaders told him the voting on the tax reform bill will be an important issue in the May 2013 elections.

“Certainly, this is the position of tobacco farmers that any bill that would affect the livelihood of tobacco farmers will be taken as an issue against those lawmakers supporting such bill,” he said.

The eight major tobacco-producing provinces are Pangasinan, La Union, Ilocos Sur, Ilocos Norte, Abra, Cagayan, Isabela and Mindoro. Other provinces that produce tobacco are Mountain Province, Ifugao, Nueva Vizcaya, Quirino, Tarlac, Nueva Ecija, Capiz, Iloilo, Leyte, Cebu, Misamis Oriental, Bukidnon, Davao, Zamboanga del Sur, Maguindanao, Cotabato and Sarangani.

Representatives Luzviminda Ilagan of Gabriela and Rafael Mariano of Anak Pawis urged senators to put off plenary voting on the Sin Tax bill and devote more time to study it.

Ilagan said they hope senators will not vote on the Sin Tax bill and instead opt to further study the proposal.

“We urge senators to continue debating and discussing the bill so they can weigh its pros and cons, and most of all, address the concerns of the sectors which will be most affected, and these are the poor. It’s not really the rich who will be mostly affected. We’re not taxing the rich here,” he said.

Senators must reject the Sin Tax bill because the government can adopt alternative ways to generate additional revenues for health programs instead of raising the excise taxes on cigarettes and alcohol that would adversely affect the livelihood of tobacco farmers and growers, Mariano said.

Funding terrorists

An American lawmaker has warned Aquino that imposing a 700 percent increase in excise taxes on tobacco products might help fund terrorist groups.

In a two-page letter dated Sept. 7, Rep. Donald Manzullo, US House of Representatives foreign affairs subcommittee of Asia and the Pacific head, said no such thing was ever conceived anywhere in the world.

“I respect the sovereign right of the Philippines to establish its own tax policy and rates,” he said.

“I am concerned that no other country in the world has raised excise taxes so precipitously, in fact, 708 percent over two years, as is being proposed in the Philippines.”

Manzullo said if such a tax increase is eventually carried out, proceeds of the funds that will be generated may go out of control and may reach terrorist groups. “Regional security is a major consideration and one where efforts are currently underway to deepen our ties,” he said.

“If such a tax increase is put in place, an explosion of illicit trafficking will inevitably occur and pour enormous amounts of money into the hands of transnational organized criminals, which operate on a global scale and many who have links to terrorists.”

Manzullo said smuggling might likewise be encouraged, not to mention more corruption.

“Instituting a 700 percent excise tax on cigarettes will only shift tobacco products to the informal market where transactions are not recorded, taxes are not collected and the rule of law is weakened,” he said.

Manzullo warned that extremely high excise taxes would create “unnecessary incentives for illicit activity (which) only facilitates corruption and undermines the rule of law.”

However, he is not against any form of increasing taxes, but only wanted a “more prudent approach” in revenue generation on so-called sin taxes for as long as it will not reach terrorist groups, he added..

He is a strong supporter of “common-sense evidence-based tobacco regulation,” but what he only wants to ensure is that funds will not “unintentionally fuel those that seek to undermine our (countries’) mutual security efforts, “ Manzullo said.

Manzullo’s Sept. 7 letter to Aquino was made after the Senate ways and means committee had already began deliberations on the excise tax bill for tobacco and alcohol products.

In proving he favors increase in sin taxes, Manzullo said he in fact voted in 2009 to support the Family Smoking Prevention and Tobacco Control Act, which authorized the comprehensive regulation of tobacco products in the United States.

Discouraging smoking “can best be ensured through a more measured approach that reflects the full range of legitimate considerations” and not just imposing such a high percentage in excise taxes, Manzullo said.

A recent US Government Accountability Office Report showed that the illicit tobacco trade triggered by high taxes can undermine health policy objectives by increasing the availability of cheap, untaxed, unregulated smuggled cigarettes to consumers.

Pro and Con

Organized labor warned yesterday of a nationwide massive displacement of workers if the Sin Tax bill is passed into law.

However, doctors said the country would benefit from the passage of the bill.

Leody de Guzman Bukluran ng Manggagawa (BM) president, said lawmakers and Malacañang should be cautious and consider the bill’s negative impact.

“We demand a status quo on taxes pending the review for an omnibus amendment of the entire taxation system,” he said.

“The current system relies more on sales taxes borne by consumers (through the EVAT) and on compulsory deduction of withholding taxes to wage-earners. It is not just anti-poor and regressive but also unconstitutional.”

De Guzman said the Constitution is very clear on the rule that taxation shall be uniform and equitable.