Deferment of sin tax amendments urged

MANILA, Philippines - Japan Tobacco International Philippines Inc. (JTI), which sells tobacco and cigarettes in 120 countries, has asked Congress to defer proposed revisions to the sin tax law until after 2011 when the last mandated tax increase takes effect.

Republic Act 9334 or the indexation of sin taxes which President Arroyo signed in 2004 called for the increase on the excise tax on tobacco and alcohol products every two years with the last increase to be implemented in 2011.

“We firmly believe that stability of laws shall be promoted if amendments to RA 9334 are passed by the 15th Congress whose term corresponds to the period after the last tax increase under the current law. Hence, it is essential for the views of the 15th Congress to be respected,” JTI said in a position paper on the pending proposal seeking to raise taxes on alcohol and cigarettes.

Earlier, Philip Morris Philippines Manufacturing Inc. managing director Chris Nelson also said the government should evaluate the proposed restructuring of excise tax on sin products particularly cigarettes.

“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 said.

In its position paper, JTI explained that when RA 9334 was passed into law in 2004 and took effect in 2005, the cigarette industry already considered the applicable excise tax rates from then until 2011.

“Whatever the business impact of the increased tax burden may be under the law, the cigarette industry stakeholders took this into account in formulating their respective business and financial strategies and outlook for 2005 until 2011,” it said.

As such, JTI argued that unexpected increases in sin taxes would be a burden for industry players.

The Department of Finance (DoF) has been pushing for a two-tier excise tax structure in 2012 and 2013 until it is harmonized to a single rate in 2014. This would replace the existing four-tier system that resulted in a 640 percent tax differential between low-priced and premium-priced brands.

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 structure yields about P50 billion in excise tax collections yearly.

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.