Excise tax collections hit P31.6B in 2010

MANILA, Philippines - The government’s tobacco excise tax collections surged 22 percent to P31.6 billion in 2010, the Bureau of Internal Revenue (BIR) reported yesterday.

The latest figure was the highest recorded since the current excise tax system was adopted in 1997 and updated in 2005.

During a hearing on excise taxes by the House ways and means committee, BIR technical assistant Conrado Item also told lawmakers that the tobacco excise collections exceeded the government’s projection of P25.81 billion for 2010 by at least 22 percent.

Since the excise tax collection exceeded even the government’s projections, Antique Rep. Paolo Javier said the government should retain the current system because the system works.

Tobacco companies are appealing to Congress to maintain the current system, claiming that this has been raising revenue.

Finance officials have been eyeing an overhaul of the excise tax system, specifically the taxes imposed on “sin” products, such as cigarettes and alcoholic drinks, to improve excise tax collections and help plug the widening national budget deficit.

Under the current system, the excise tax levied on cigarettes and alcohol vary in rates depending on the price classification. The higher the classification, the higher the tax rate. For instance, cigarettes have four classifications, each levied a different tax rate and favors low-priced brands.

The tax rates for cigarettes have been rising every two years starting in 2005 at varying paces. However, while the increase was supposed to result in higher revenues for the government, records from the Bureau of Internal Revenue had showed that the intended increase in tax collection did not materialize.

At the House hearing, Chita Laysa-Herce, tax and fiscal affairs manager of Philip Morris Fortune Tobacco Inc. (PMFTC ), said that volume of cigarettes that were withdrawn from the factory, or removals, as well as revenues from 1997 to 2004 grew at the same compounded annual growth rate (CAGR) of 5.4 percent.

Herce stressed that the current system allows the government to achieve the twin objectives of reducing tobacco consumption while increasing revenue.

PMFTC, the industry leader, is a joint venture between multinational firm Philip Morris and Lucio Tan-led Fortune Tobacco.