Ad valorem tax for cigarettes to generate more revenues for gov’t

The government will generate more revenues – an additional P2.6 billion annually – under the ad valorem system for cigarettes and the fiscal measure is in accordance with the Constitution and the laws of the land.

"Under the proposed bill (ad valorem tax scheme), the basis for taxation will be the actual retail price of cigarettes in the market. This is the best form of taxation that guarantees additional revenues for the government," said Salvador M. Mison, president of Basic Holdings Inc., the holding company of Fortune Tobacco Corp., at a forum in Hotel Rembrant, Quezon City, last Friday.

The forum was also attended by Reps. Antonino Roman of Bataan and Crispin Remulla of Cavite.

Allaying concerns that the tax proposal would result in price underdeclaration, Mison said this argument was used by people advocating a shift to specific taxation in 1996 and 1997.

"What is the use of undervaluing the manufacturers’ cost when the marketing arm cannot determine the basis for taxation," Mison said.

Citing the superiority of the ad valorem tax system, Mison reiterated that the scheme would capture revenues, and it is progressive and equitable as taxes are based on consumers’ ability to pay. "Those who can afford to pay more should pay more and those who can afford less should pay less."

Fortune’s Hope brands, according to Mison, suffered a 46 percent drop in sales when the Comprehensive Tax Reform Program (CTRP) was enacted in 1997. CTRP slapped a 50 percent tax on Hope brands and only 40 percent on imported brands, like Philip Morris.

He said under the uniform tax rate increase being proposed by a giant multinational cigarette company, an across-the-board increase of P2 would be imposed and through this measure the tax component of Hope would be 60.8 percent and Philip Morris 44.6 percent.

"We should come with a tax scheme that is fair. Let’s give our local producers and farmers a level playing field in the tobacco market," Mison stressed.

Fortune Tobacco had submitted to the House ways and means committee data from the Bureau of Internal Revenue showing that excise tax collections under ad valorem (1989 to 1996) grew by an average of 12.46 percent as against an average growth rate of only 4.05 percent under the specific tax system between 1997 to 2003.

Earlier, Rep. Exequel Javier, former chairman of the House ways and means committee, cautioned Congress against adopting Malacañang’s proposed tax indexation on cigarettes as this has the effect of delegating the power to fix the rate of the President or the secretary of the finance, which is not allowed under the Constitution.

Data based on the retail prices of 63 cigarette brands and number of packs sold last year showed that the government earned about P19.4 billion in revenues in 2003 from tobacco manufacturers under the specific tax system.

However, had the ad valorem computation been applied to the same 2003 cigarette volume, the government would have collected P25.087 billion in excise taxes or P5.6 billion more than what was collected under specific taxation.

Javier said the advantage of ad valorem is that the tax, and, therefore, the revenues, continues to increase as the cost of cigarettes goes up.