Government asked to defer hike in 'sin' taxes

MANILA, Philippines - Philip Morris Philippines Manufacturing Inc. (PMPMI) is asking the government to defer plans to raise excise tax on alcohol and cigarettes, saying that the volume of withdrawals of the tobacco industry has dropped due to the global economic crisis.

Chris Nelson, PMPMI managing director, urged the government to consider the current global economic situation.

“The market is also influenced by the global economy. Any excise tax restructuring should be studied with extreme care. Certainly, there is no need to do it this year,” Nelson told reporters on the sidelines of the 3rd Bright Leaf Awards at the Hyatt Hotel and Casino Manila late Friday.

Nelson said the volume of withdrawals of the cigarette industry plunged by 30 percent from January to June because of poor economic conditions.

By yearend, he said there would be a 10-percent decline in the volume of withdrawals to roughly 80 billion sticks from about 90 billion sticks last year.

A case filed by Thailand against the Philippines before the World Trade Organization (WTO) has also put pressure  on the company’s operations. Philip Morris exports to Thailand roughly 25 percent of the company’s output from its $300-million plant in Batangas.

“We are optimistic that we will get a favorable ruling,” Nelson said as he thanked the government for strongly supporting the company in the WTO case.

Meanwhile, the Department of Finance (DOF) expressed hopes that lawmakers would prioritize next the pending proposal seeking to raise taxes on the so-called sin products.

Last week, the House committee on ways and means approved a proposal imposing a five-centavo tax on text, multimedia messages, and calls. The committee approved a consolidated version of Ilocos Sur Rep. Eric Singson’s bill and Quezon Rep. Danilo Suarez’s resolution imposing the five-centavo excise tax.

The measure is expected to raise P29 billion a year.

Finance Undersecretary Gil Beltran said that while this is a welcome development because it would generate revenues, the department is also hoping for the immediate passage of the proposed sin tax measure. “We hope that will come next,” he said, referring to the proposed sin tax measure.

The DOF is willing to settle for an interim two-tiered sin tax rate on alcohol and tobacco products before having a single-tax rate for all products.

“It will be a phased-in increase until there is a single rate. Right now we have four tiers that make the system very complicated. We will collapse it to a single rate by 2014,” Beltran said.

According to government estimates, the proposed 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.

The DOF said that the current tax structure for cigarettes is inequitable because products having the same current net retail price can be taxed differently if one was introduced before January 1997 and another one after 1997.