DOF sees only small rise in take from excise tax on 'sin products'

MANILA, Philippines - The Department of Finance (DOF) expects excise tax collections from tobacco and alcohol products to rise by a measly 3.7 percent next year as it earlier agreed to defer to 2012 any further increases in “sin tax” rates.

Estimates made by the government showed that the imposition of higher excise tax on cigarettes and liquor would yield P60.16 billion in 2010 or P2.12 billion higher than the projected collection of P58.04 billion this year.

The projections, contained in the government’s proposed 2010 Budget of Expenditure and Sources of Financing, also put collections from cigarette manufacturers at P26.51 billion next year or 4.8 percent higher than this year’s P25.3 billion, while collections from liquor makers are expected to increase 6.2 percent to P21.29 billion from P20.05 billion.

Tax collections on sin products rose to 12 percent to P47.1 billion in 2008 from P42.2 billion in 2007 as manufacturers withdrew more from their warehouse to avoid the eight percent increase in excise tax at the start of 2009, data from the DOF showed.

Of the amount, excise taxes paid by cigarette manufacturers increased 17.9 percent to P27.35 billion. Finance officials said this is due to the increase in the volume of withdrawals — up 14.37 percent to 4.727 million packs from 4.133 million packs.

The amount paid by liquor makers, meanwhile, increased 3.9 percent to P15.63 billion as volume of withdrawals of fermented liquor rose 2.85 percent while that of distilled spirits increased 10.4 percent.

Republic Act 9334 or the indexation of sin tax on alcohol and tobacco products mandates that excise tax slapped on sin products would increase every two years until the increase reaches 20 percent by 2011.

At present, the tax system on sin products is four-tiered. It had a mixed specific and ad valorem system in place since 1997 wherein cigarette brands are classified into four categories — low, medium, high, and premium — based on their net retail price.

The Finance Department earlier agreed to defer any possible increase in the excise tax on sin products to 2012 due to the global economic slowdown. It hopes to raise P19 billion in additional taxes in 2012, another P42 billion in 2013, and P57 billion in 2014 and onwards.

Under the proposed adjustment, the DOF seeks to implement a two-tier excise tax structure in 2012 and 2013 until it is harmonized to a single rate in 2014.

Major industry players such as Fortune Tobacco of taipan Lucio Tan, Philip Morris Philippines Manufacturing Inc., La Suerte Cigar & Cigarette Factory and alcohol producers Ginebra San Miguel, Tanduay Distillers, Consolidated Distillers of the Far East, Diageo Philippines and Distileria Bago want the government to defer moves to raise taxes on cigarettes.