Department of Finance pushes sin tax measure

MANILA, Philippines - The government, through the Department of Finance (DOF) may have to push Congress to pass the proposed sin tax measure now instead of waiting for 2012 as requested by industry players.

A DOF official said the measure may be passed now even if this would take effect in 2012 instead of starting the tedious legislative process only after the existing measure expires in 2011.

The approval of the measure would help ensure a steady stream of revenues in the next three years, Finance officials said.

Furthermore, the approval of the measure would help appease the European Union (EU) which recently filed a case against the Philippines before the World Trade Organization (WTO) for discriminating against foreign-branded “sin” products. European countries export to the Philippines various brands of liquor and cigarettes.

The EU said the country implemented a multi-tiered tax rate for high-priced, middle-priced and low-priced brands. Imported cigarettes and liquor are usually categorized as high-priced and are targeted for higher excise tax.

“We want it passed now. We don’t want to go back to square one again in 2011 and beg Congress for a replacement of the law that had expired,” DOF fiscal planning director Teresa Habitan said in an interview.

Even if the measure would be passed now, Habitan said this would still be enforceable in 2012 as requested by industry players but this nonetheless ensures uninterrupted revenue stream after the existing sin tax regime expires in 2011.

She said Congress could pass the new law now, allow the expiration of the present law in 2011 and after which, start the new tax system in 2012.

The new sin tax rates will call for an interim two-tier rate replacing the existing multi-tier tax system until Congress and big players in the tobacco and liquor industry agree to adopt a unified-single tax rate, according to the DOF official.

Under the two-rate tax system, sin products will be classified either as priced or low-priced, eliminating the middle-priced brands or those in between the brackets of high-priced and low-priced brands.

The Finance department said amendments to the sin tax law could raise as much as P19 to P20 billion in the first year of implementation, P30 to P40 billion in the second year, P40 to P50 billion in the third year and P60 to P70 billion in the fourth year.

Habitan said the DOF would just want the new law passed this year and possibly give a positive signal to the WTO and also to investors that the country’s laws on sin products are fair and equitable to all players.