MANILA, Philippines – The drop in cigarette excise tax collections this year following an increase in rates last Jan. 1 should force the Department of Finance to rethink its proposal for yet another round of tax increases as this would not only result in dwindling revenue collection but may very well sound the death knell for the entire local tobacco industry.
Deputy House Speaker Eric Singson said that based on the figures submitted by the DOF to Congress, tax collections for the first quarter this year fell by 35.62 percent compared to the same period last year. DOF data showed collections for the first quarter of 2008 at P6.2 billion but the figure dramatically dropped to an alarming P4.21 billion this year when the rates were adjusted.
Finance Secretary Margarito Teves maintained before the House ways and means committee that they are looking to tax cigarettes more because the product is not price sensitive, a claim that was met with a lot of raised eyebrows in the committee.
A presentation made by the DOF to the committee earlier imputed a price elasticity factor of .235 for cigarettes, meaning for every 10 percent increase in price, demand is expected to go down by 2.35 percent.
“So what is the use of increasing the tax when we do not expect an increase in revenues? Imposing higher taxes would only force people not to buy which would lead to lower collections. This will defeat the purpose of these bills to increase revenues,” Singson said.
In the Senate, Sen, Panfilo Lacson, chairman of the Senate ways and means committee, said he is now just pushing for the passage of his bill increasing excise taxes on alcohol products and not on cigarettes anymore. Lacson acknowledged numerous objections to the cigarette tax hike from various industry stakeholders, including manufacturers, retailers and the tobacco farming community.
Meanwhile, several of the country’s biggest tobacco farming organizations also lashed out at Teves for sacrificing the welfare of more than two million farmers and stakeholders just to be able to collect more taxes which the government may not even realize in the end.
The Immayos Farmers Association (IFA), the Samara Farmers Associations (SFA), the Itawes Foundation Inc. as well as the Philippine Association of Tobacco-based Cooperatives (Patco) said farmers and their families would be driven to poverty should Teves push for another excise tax increase this year.
The farmers explained that the government had just increased the excise tax on cigarettes last Jan. 1, 2009, and imposing a similar tax this year would push prices of locally manufactured cigarettes higher.
They said that this would result in lower demand, which would lead local cigarette manufacturers to cut down their purchases of tobacco leaf.
“Such a scheme is anti-tobacco worker. The decrease in the demand for locally produced tobacco will demolish the livelihood of tobacco farmers and will cause loss of jobs among the laborers under the farmers’ employ, which is contrary to the policy of the State to increase job generation. Also, there will be loss of jobs in the manufacturing sector, the tobacco-buyer sector, and within the government as well,” said Patco president Alejandrino Reyes.
These views were shared by the Federation of Philippine Industries (FPI), which said that “higher taxes mean higher prices and less demand.”
“In the end, the government’s intention to raise more revenues out of these products will not be realized,” said FPI president Jesus Arranza.