DOF urges Congress to lift cigarette price classification freeze

MANILA, Philippines - The Department of Finance (DOF) is urging Congress to abolish the price classification freeze on certain cigarette brands, saying that this provision only favors market leader PMFTC.

Finance Secretary Cesar Purisima said dismantling the annexes and price classification freeze on certain brands are at the core of the excise tax reform proposals that the government is pushing.

 “These provisions serve nothing else but to protect the market shares of existing companies at the expense of public health,” Purisima said.

The Finance department is supporting House Bill 5727, authored by Cavite Rep. Joseph Emilio A. Abaya which seeks to reform the current excise tax regimen of alcohol and cigarettes.

Specifically, the bill, currently pending at the House ways and means committee, wants to abolish the annexes and price classification freeze of certain brands.

Under the prevailing sin tax system, 1996 brands, which cover the brands of PMFTC, are permanently classified regardless of an increase in net retail prices but post-1996 brands are classified based on current retail prices.

This happened because of Republic Act 8240 or the excise tax reform law, which was enacted in November 1996.

The law froze taxes due from tobacco and alcohol products based on net retail prices on Oct. 1, 1996.

As a result, brands sold as low-priced cigarettes in 1996 continue to be taxed as low-priced whether or not they have been repackaged already as premium cigarettes.

On the other hand, new brands that entered the market after the law was passed are taxed according to their current net retail price.

The Finance department cited the results of a survey by the Bureau of Internal Revenue (BIR) conducted in late 2010 which showed this discrepancy.

BIR survey results showed that Winston cigarette was sold at P22.93 per pack, while American Blend cigarette, introduced after 1996, was sold at P23.60.

While the price difference was less than P1, there is a huge discrepancy in the taxes slapped between the two brands.

BIR data showed reveal that Winston was only taxed P7.56 per pack, while American Blend had a higher rate of P12.

 “Removing the brackets and price classification freeze will not disadvantage locally-produced cigarettes over imported ones. There is no provision in the bill creating such a distinction,” Purisima said.

Former Finance and Health secretaries on Wednesday signed a manifesto of support to HB 5727. Among the signatories were former Finance secretaries Margarito Teves, Ernest Leung, Ramon del Rosario, Jr. and Roberto de Ocampo and former Health secretaries Jaime Galvez-Tan, Esperanza Cabral, Juan Flavier, Alberto Romualdez, Jr. and Alfredo Bengzon.

PMFTC, which controls 94 percent of the local cigarette industry is the merged entity of Philip Morris and Fortune Tobacco. It is opposing HB 5727, saying that higher taxes would kill the local tobacco industry