Need for an equitable policy

Last week, the House Ways and Means Committee passed a modified version of the “sin” tax bill. It did away with a single-rate tax for alcohol and tobacco products as originally proposed under House Bill 5727, and replaced it with a two-tiered system for cigarettes and a three-tiered one for liquor.

The revised bill needs more fine-tuning to make it equitable and fair for all stakeholders, but the fact that our lawmakers allowed such modifications is a welcome development. This sends the message that Congress is open to reasonable suggestions to make the bill acceptable to all stakeholders, especially to the small farmers and workers dependent on the alcohol and tobacco industries.

Now that Congress has come out with a modified version, the next step is to study and hold extensive consultations on the changes. We are glad to hear that Speaker Sonny Belmonte had promised to carry out these necessary steps as part of the legislative process.

The need for additional consultations and a thorough study on the impact of the modified HB 5727 is necessary because of the haste in approving the measure. Last week’s hearing was supposed to discuss the excise tax on alcohol products, but many were surprised when the committee suddenly called the bill to a vote even though the congressmen had not yet even studied the impact of its amended provisions.

The fact that the bill was hurriedly approved was evident in the fact that it contained several lopsided provisions.

One of them is the tax levied on fermented liquor or beer. Under the approved revised version of HB 5727, high-priced fermented liquor costing more than P22, which is currently taxed at P20.57 per bottle, falls under a lower tax of P18.80 in 2013; and P20.30 in 2015. It will only start paying higher taxes in 2017 when the rate is pegged at P21.92.

For mid-priced beer brands like San Miguel, which costs between P14.50 and P22, the current tax is P15.49 per bottle. Low-priced brands or those costing less than P14.50 a bottle, pay P10.41 in tax per bottle.

For the succeeding years, both low-priced and mid-priced brands will have the same taxes of P13.75 in 2013; P14.85 in 2015; and P16.04 in 2017.

In all instances, high-, mid-, and low-priced beer brands will only start paying higher taxes in 2017.

Note that the tax hikes for beer are low and gradual. Much so that in the first year (2013) there is no change in the tax rate for the mid- and high-priced as rate in the amended version is lower than the current tax figure.

In the case of tobacco products, the tiers were divided into low-priced and high-priced brands.

Low-priced cigarette brands costing less than P12 are now taxed P2.72 per pack. Under the revised version of HB 5727, this will radically increase to P12, or more than double its current net retail price in 2013. The tax for the following year will increase to P22 per pack.

High-priced cigarettes, which include the previously classified mid-priced, high-priced and premium brands will pay a uniform tax of P28.30 in 2013 and P30 in the following year under the modified HB 5727.

It would be interesting to note that mid-priced brands currently pay P7.56 in tax per pack; high-priced brands, P12; and premium, imported ones, P28.30.

Another interesting feature of the bill is that cigarettes get another tax hike in 2014, while beer does not.

Taxes for both alcohol and liquor will increase eight percent every two years, effective 2015 and until 2025.

To sum up, the inequitable features of the bill, which Congress should review further are the following:

Fermented liquor is exempted from a tax increase in 2014, but cigarettes are not.

Tax increases for fermented liquor across all tiers are gradual, but cigarettes in the low-priced tier get a hefty 700 percent increase

Premium, imported cigarette brands are exempted from a tax increase in 2013 and are slapped a measly addition of P2 tax hike in 2014, while all other brands are taxed heavily, especially low-priced cigarettes at 700 percent

High-and mid-priced fermented liquor get to pay higher taxes starting only in 2017, while the tax hike for low-priced tobacco are excessive in the first year of implementation alone.

Given these inequitable features, the call for a review on the modified sin tax bill by the tobacco manufacturers, workers and farmers, are only fair and reasonable.

One cannot fault them for urging Congress and the Department of Finance to revisit the features of the amended sin tax measure, especially since the future of 2.9 million Filipinos dependent on the local tobacco industry is at stake here.

The Philippine Tobacco Institute, for one, pointed out that low-priced brands, which will get a beating under the revised bill, account for 63 percent of local tobacco sales.

PTI president Rudy Salanga noted that a 700 percent tax increase on low-priced brands will hurt tobacco farmers, whose produce are used primarily to make low-priced cigarettes.

“The proposed increases remain high and would impact on the demand of legitimate cigarettes. We have always supported reforms in the excise tax system and we are for moderate and reasonable increases that would provide sustainable livelihood for farmers and workers,” Salanga had said.

Philip Morris Fortune Tobacco Corp. president Chris Nelson also underscored the need for equitable and reasonable tax increases. “We are open to collaborating with the government and Congress. What is important is that our legislators are open to hearing the side of stakeholders like the farmers, the workers, the consumers, and small manufacturers.”

The key words “moderate”, “equitable”, and reasonable” are what our congressmen should keep in mind when reviewing the amended sin tax bill.

The resurgence of smuggling as a result of the unavailability of low-priced legitimate brands is another factor that our lawmakers cannot ignore. Unabated cigarette smuggling will undermine revenue targets set by the government and prove to be counters productive in regulating and curbing tobacco use.

Cigarette smuggling has already been reported in Mindanao and counterfeit brands have already made it to our shores even under the current system. Implementing an inequitable tax scheme which will result to higher prices on local   brands will make the task even easier for smugglers, considering that there’s a ready market for cheap, counterfeit cigarettes that cater to low-income smokers.

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