IMF pushes unitary tax system

MANILA, Philippines - The International Monetary Fund (IMF) recommended the adoption of a unitary sin tax system and indexation of excise taxes to inflation as proposed under House Bill 5727, which is currently pending before the House ways and means committee.

The bill, authored by Cavite Rep. Joseph Abaya, is being pushed by the Aquino administration.

In a report by the IMF Fiscal Affairs Department titled “Road Map for a Pro-Growth and Equitable Tax System,” the multilateral lender shot down arguments raised by cigarette firms that higher sin taxes would lead to job losses in the tobacco industry.

The IMF said that even if cigarette prices increase, it is unlikely that this would result in job losses in the tobacco industry.

“Even when worldwide tobacco taxes increase, they are unlikely to have a significant impact on tobacco dependent employment in most countries,” the IMF said in its report.

The Washington-based lender said that tobacco-related jobs are not necessarily dependent on tobacco alone.

“Some argue that the (excise) tax increases will result in job losses, noting that many are employed in tobacco growing, manufacturing and distribution. However, many of the jobs that are counted in estimates of the economic contribution of tobacco are far from dependent on tobacco, but rather involve tobacco in some limited way, often indirectly,” the IMF said.

It added that retailers who sell tobacco sell other products as well.

Even jobs that “can be considered truly dependent on tobacco” are also safe from price increases, the IMF said in its report.

If in case domestic demand goes down, tobacco producers can increase sales abroad.

“So it seems unlikely that tobacco farmers would be very adversely affected by increases in tobacco excises,” the IMF said in its report.

Furthermore, the IMF said that higher sin taxes could translate to new employment in other sectors.

“When it is argued that higher taxes on tobacco products lead to employment losses, this argument ignores the fact that shifts in spending away from tobacco products generate new employment in other sectors, with the net impact generally positive,” the IMF said.

In the case of liquor, the IMF said reform is necessary so as not to “differentiate between domestic and imported brands with same alcohol content” as prescribed by a recent ruling from the World Trade Organization.