Additional taxes may kill tobacco industry, warns solon

A senior lawmaker has criticized the Department of Finance for pressuring Congress to reclassify cigarettes to a higher tax bracket so the government can generate more revenues, stressing that the tobacco sector is already an overtaxed industry.

Rep. Exequiel Javier, former chairman of the House ways and means committee, said for the last 10 years, the excise taxes on cigarettes had been raised by Congress unsparingly and without letup, starting with the shift from ad valorem to specific tax.

He said since Republic Act No. 8424 was enacted into law in 1997, the cigarette industry paid no less than P85.5 billion in excise taxes.

Javier delivered a privilege speech last week assailing Finance acting Assistant Secretary Ma. Teresa Habitan for insinuating in her Sept. 12, 2003 memorandum to Finance Secretary Jose Isidro Camacho that Congress had been sleeping on its job for failing to reclassify several cigarette brands to a higher tax bracket. Habitan said the congressional oversight has resulted in billions of pesos in foregone tax revenues.

Javier said Congress must be very careful in legislating tax laws. "Should it tax the industry out of existence and lose the easy source of huge revenues or give the industry a breathing spell after 10 years of rounds of increases in excise taxes and protect the government’s source of revenues?"

The solon said while the cigarette industry is being taxed relentlessly, it must contend with the stringent laws on anti-smoking, which have reduced demand. "Government is oblivious to the shrinking demand for tobacco products, which is due to its own making, yet it wants to extract its pound of flesh from the industry."

The solon admitted that reclassifying sin products to a higher tax bracket is a "difficult task of legislative balancing."

"Congress must always strike a healthy balance between government’s need for additional revenues and the industry’s survival in these difficult and trying times," he said. There are hundreds of thousands of people directly and indirectly dependent on the industry as well as local government units (LGUs), particularly in the Ilocos Region, whose income is mostly derived from the tobacco sector.

He said before Congress is made to act on any new tax measures, the DOF should first implement existing laws. "The public complains that we have too many laws, but short in implementation. The law on sin taxes is one very clear example. Let the DOF prove first that it is capable of collecting taxes on new brands as mandated by RA 8424, then Congress can start talking about the new taxes it wants enacted," he said.

The congressman said the DOF has even failed in the past four years to collect additional taxes from the new cigarette brands of La Suerte Cigar and Cigarette Co.

"As early as 1999, when La Suerte introduced its Astro and Memphis brands to the market, their retail prices kept going up through the years but their taxes remained in the lowest level of P1.12 per pack," he pointed out.

He added: "If the DOF knew better than Congress, how come it failed to do its job in reclassifying the new brands of La Suerte despite the clear and unequivocal mandate given to it by RA 8424?"

Javier said the DOF’s failure to reclassify these brands has resulted in losses for the government of at least P3 billion in revenues from La Suerte alone.