Distorted arguments to thwart reforms

Not mincing her words and responding with swiftness and conviction, Bureau of Internal Revenue Commission Kim Henares put two tobacco companies in their rightful place for using scare tactics when objecting to the passing of the “sin” tax bill.

Just recently endorsed as urgent by P-Noy and introduced in the House by Rep. Isidro Ungab, chairman of the Committee on Ways and Means, House Bill No. 5727 seeks to simplify the current predatory tax structure on spirits and tobacco.

In particular, Henares reprimanded the alliance of Philip Morris and Fortune Tobacco for raising the specter of rampant cigarette smuggling should the current taxes on tobacco products be increased. The two joint companies now control over 93 percent of the Philippine market.

Even after stating that a resulting higher retail price of cigarettes would only encourage smuggling, the monopoly of Philip Morris and Fortune Tobacco had the gall to warn that the proposed taxation reform would only reduce demand for tobacco products, ergo, bring down its sales.

Red herring fallacies

If you can imagine the upright Henares speaking, it would be in that offended voice declaring that “cigarette prices are not the main determinant of how much smuggling takes place. It is the quality of governance that really matters.” Uh-oh.

In this case, it would be cause for anyone heading the BIR to feel offended by an innuendo that he (or she) is not doing a good job at curbing smuggling.

Calling the smuggling argument of tobacco firms as “a clear case of red herring fallacies,” Henares cited that many other countries that hiked their tobacco taxes have not experienced any significant increases in smuggling.

In fact, the good commissioner enumerated how governments that had raised taxes to as high as P200 per pack still managed to control smuggling using efficient and effective ways.

Correspondingly, some countries like Vietnam where cigarette is sold at half the retail price in the Philippines surprisingly has a high smuggling incidence rate. This simply proves that smuggling is not always a function of how much taxes are levied on the tobacco products.

Thus, the cases presented by Henares are enough to totally debunk any smuggling arguments espoused by those opposed to the “sin” tax reform bill.

Faulty logic

With the smuggling reference cited by the Philip Morris-Fortune Tobacco tandem, Bureau of Customs commissioner Rufino Biazon likewise seemed irked.

The commissioner declared that “PMFTC employs faulty logic when it hints that a tobacco black market threatens to erupt in our midst.” He further stated that, “Ironically, PMFTC and its allies have ignored how the prices of their own products would fare over time compared to that of other ASEAN countries.”

Noting that in spite of the higher taxes that would be imposed, Biazon believes that cigarettes in the Philippines would still be cheaper. “Sneaking tobacco goods into our country would largely remain unprofitable for would-be smugglers,” the Commissioner added.   

It is not the physical illicit entry of cigarette products that should be government’s primary concern now, but rather the “technical smuggling” that has been happening over the last 16 years because some cigarette firms have been allowed to exploit “privileges” imbedded in taxation loopholes.

Northern Alliance

The lobby of the more influential tobacco firms extends its argument against the new tax reform by citing the likelihood of tobacco farmers – who are mostly concentrated in the northern part of Luzon, and largely in the Ilocos region – losing their source of income.

This is also echoed by some lawmakers associated with what is known as the Northern Alliance.

The support of this powerful bloc of congressmen would have made for compelling reason had it not been exposed by studies that the present tax system on tobacco has perpetuated a monopoly that has not only robbed the national coffers of a significant amount of tax collections but also of better earnings for tobacco growers.

With a monopoly in the industry for more than a decade, it is not surprising to see the prices of local tobacco leaves dropping to below international levels, the farm harvest of tobacco continuing to decline, and the standard of living of our tobacco farmers being reduced to near poverty levels.

In contrast, during the same period, only the tobacco monopoly company that kept its stronghold on the industry had managed to increase its earnings – by more than 300 percent!

HB 5727, should it be passed in its current wordings, would break the unholy alliance that Philip Morris and Fortune Tobacco have perpetuated to the detriment of tobacco farmers. Plus increased collection of taxes would mean better support that could help the farmers improve their means of livelihood.

“Sinful” compromises

Desperate times call for desperate arguments and acts. When clearly it has not been possible to debunk the premise that the amount of taxes currently collected from cigarette sales is not enough to pay for the associated health problems arising from smoking, the tobacco monopoly is resorting to other ploys.

Harping on such red herring fallacies as a rise in smuggling cases or the loss of livelihood by farmers would not hold water. Thereupon, the pressure to revise the current bill would be the last resort.

The tobacco lobby for status quo is now training all its resources to forcing compromises in the proposed restructuring of the tobacco tax classification. Whereas P-Noy has supported a uniform taxation structure, the tobacco monopoly is angling for a reduction of the current four tiers to just three, and possibly with no significant change in taxes.

For a government that badly needs additional funds, a “sin” tax reform bill that wouldl not truly reform the existing malady could be likened to an act of plunder that is inimical to the interest of the Filipino people.

Lest I be accused of spreading another red herring fallacy, let me clarify. We’ve seen how the current leadership has made good its promise to go after those who have erred: former president Gloria Macapagal Arroyo, former ombudsman Merceditas Gutierrez, and recently former Supreme Court Chief Justice Renato Corona.

We eagerly await the turn of those big businesses that have wronged this nation. We should not allow them to continue short-changing the Filipino people through flawed laws

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