Local businessmen warn vs high sin tax proposals

MANILA, Philippines — Local businessmen have opposed a proposal pushing for a further increase in alcohol and cigarette excise taxes, saying such a move may lead to even higher incidence of illicit trade.

“We do not support rushing the passage of bills that will increase taxes on tobacco products at a time when rampant smuggling of these products continue,” Federation of the Philippine Industries Inc. chairman Jesus Arranza said in a position paper submitted to the Senate Ways and Means Committee.

Arranza said the government is losing over P200 billion in duties and taxes each year because of unabated smuggling at the ports.

He cited a study conducted by the Center for Research and Communication Foundation Inc. of the University of Asia and the Pacific which found that excise and value-added tax losses due to illicit trade of cigarettes increased from P2.6 billion in 2012 to P19.9 billion in 2014 and P17.9 billion in 2015, the same period when taxes of sin products significantly increased.

“The findings in the study reveal a worrying scale of smuggling in the Philippines.  The data collected validate the detrimental effect of illicit commerce, including billions of pesos in foregone tax revenues and loss of legitimate  employment.

The study showed that the total number of displaced workers due to cigarette smuggling from 2013 to 2015 was 6,381.

Arranza said “the series of law enforcement actions against smugglers and illicit traders of cigarettes in 2018 are proof that criminal elements are making tons of money in this industry.”

“Finance Secretary [Carlos] Dominguez himself recognized that the increase in tobacco excise taxes “has incentivized illegal traders to increasingly resort to smuggling and tax evasion,” Arranza said.

“As DOF (Department of Finance) noted, the successive tax increases on tobacco products have already emboldened criminal elements to smuggle in or manufacture cheaper illegal cigarettes,” he added.

President Duterte earlier agreed to certify as urgent the proposal of the DOF and Department of Health to jack up sin taxes.

The House version of the sin tax reform bill, which the lower house passed on third and final reading before the Christmas break, seeks to impose an additional tax of P2.50 for every pack of  cigarettes.

At the Senate, Sen. Manny Pacquiao proposed to increase the excise tax on cigarettes to P60 per pack  while Sen. JV Ejercito proposed  to raise the cigarette excise tax to P90 per pack.

The DOF earlier said it was eyeing to raise an additional P61.3 billion in revenues from the second round of increased “sin” taxes proposed under its comprehensive tax reform program. The figure is expected to increase further to P77.6 billion by 2021.