House body bats for 12% hike in cigarette taxes

The House of Representatives ways and means committee rejected a proposal to raise taxes on liquor and cigarettes by 37 percent and is, instead, pushing for a maximum increase of 12 percent.

Negros Occidental Rep. Julio Ledesma IV, committee chairman, said "there is no way" that the committee will approve House Bill 5057, certified as urgent by Malacañang, which is projected to raise as much as P7 billion in new taxes this year and help government reduce its budget deficit.

"We want to make the taxes as small as possible. Raising taxes on alcohol and tobacco doesn’t mean it will translate to higher revenues for government because the public will just shift to lower-end products and even encourage smuggling," said Ledesma.

He said a 12-percent increase in taxes for the so-called "sin" products is the most acceptable scheme since this takes into consideration the cumulative inflation from 1997.

There are two legislative measures pending in Congress under the automatic indexation of the tax rates and tax brackets once every two years on the cumulative inflation rate and periodic classification of these excisable products.

Both bills, if passed and implemented, will generate an additional P5.26 billion in excise taxes from the sale of cigarettes and about P2.28 billion from liquor.

Ledesma said that under the Comprehensive Tax Reform Program implemented in 1997, there was a provision that called for the one-time increase of taxes on sin products by 12 percent by January 2000.

The Department of Finance (DOF) has been arguing that the one-time adjustment in excise tax on the so-called sin products in January 2000 was not enough since the cumulative inflation from 1997 to 2001 had reached 37.3 percent.

But Ledesma said it would be better to trim 25 percent out of the cumulative inflation to cushion its impact on the public.

A survey done by the National Tax Research Center showed that many of those classified as low-priced brands are now selling at higher prices and could have been converted into additional collection if Congress ordered a reclassification and adjustment in tax rate.

According to the Congressional Planning and Budget Office (CPBO), excise tax collections from alcohol and tobacco products have been declining despite the CTRP of 1997 because the structure was non-responsive to inflation and there were several weaknesses in tax administration.

The CPBO said the defects could be addressed if the excise tax is automatically indexed to inflation and if the law would allow the periodic classification of excisable products.

The DOF, upon the recommendation of the Bureau of Internal Revenue, issued Revenue Regulation 22-2003, which reclassified 30 new cigarette brands into a higher-tax category. The revenue measure took effect on Sept. 1, 2003.