Government may lose P60 billion on higher cigarette taxes

MANILA, Philippines - The National Tobacco Administration (NTA) has warned that proposals to increase excise taxes on cigarettes may actually backfire on the government as it may lose some P60 billion in revenues.

In a position paper submitted to the House ways and means committee, NTA Administrator Carlitos Encarnacion noted that the economy could not absorb the estimated two million people in the tobacco industry who will be displaced if the government insists on increasing taxes on cigarettes for the second time this year. The excise tax on alcohol and cigarettes were already increased last Jan. 1, 2009.

Encarnacion’s statement supported earlier pronouncements by several lawmakers, the Philippine Tobacco Institute (PTI) as well as various farmers’ groups and non-government organizations, who all expressed fears over the possible collapse of the tobacco industry should taxes be increased again this year.

The NTA chief said that the adverse repercussions from increasing the excise tax may include “the loss of the annual average revenue to the government, from the tobacco industry, amounting to P31 billion.” This, according to Encarnacion, is over and above the P29- billion revenues being lost from smuggling and proliferation of counterfeit cigarettes.

Encarnacion said pushing the tax rates upward will definitely increase the price of cigarettes. But “this may result to out-pricing ourselves and driving us out of competition in the global market,” he said.

 “In addition, this will even encourage illicit trade such as smuggling and the manufacture of counterfeit cigarettes, which will result to a loss in the annual revenue of the government between P23.6 billion and P29 billion,” he said.

 “If this will happen, the local industry and the government will suffer the consequences, and the purpose of curbing smoking continues to be defeated,” he said.

The NTA chief said more than two million people engaged in the tobacco industry such as farmers, the farmers, personnel in trading centers, factory workers, retailers, and vendors would lose their jobs at a time when employment is scarce.

Encarnacion said that the NTA, in carrying out its mandate to ensure that the interest of tobacco farmers, growers, workers and stakeholders are not adversely compromised, “cannot agree to any campaign that would result to the reduction or loss of livelihood without first establishing direct and concrete measures to cushion the adverse repercussions of the said campaign to the affected sector.”

 “The present period of economic adjustment affecting the country, brought about by the global financial crisis, when we (the NTA) are pressured to look for livelihood and income for everyone, may not be the proper time” to introduce a tax increases, he said.

Earlier, several lawmakers, who include Antique Rep. Exequiel Javier, chairman of the house ways and means committee; Camarines Norte Rep. Liwayway Vinzons-Chato, Cagayan de Oro Rep. Rufus Rodriguez and Isabela Rep. Giorgidi Agabao said the government should not be increasing taxes in this time of global economic recession and should instead leave money in people’s pockets.

The PTI, which is the association of cigarette manufacturers, supported the legislators’ position, adding that “another round of excise tax increases this year will pose disruption to the industry and even be counter productive to the government in the end.”

Farmers’ groups like the the Immayos Farmers Association (IFA) and the Samara Farmers Associations (SFA) have also called on Congress to reject proposals to adjust excise tax on cigarettes for the sake of the thousands of tobacco farmers and their families who will be most affected if current excise tax rates are increased.

The non-government organization Itawes Foundation Inc. appealed to Congress to reject the excise tax proposals and spare from further economic woes the more than two million tobacco farmers, their families, and other dependents on the industry who will be most affected.