Liquor makers ask court to stop implementation of sin tax law

MANILA, Philippines - The country’s major liquor makers are asking a Manila court to stop the implementation of the newly enacted Sin Tax Reform Law, saying it is unconstitutional and tantamount to double taxation.

In a 30-page petition for temporary restraining order and writ of preliminary injunction filed with the Manila regional trial court Monday, the Distilled Spirits Association of the Philippines (DSAP) said enforcing the law would cause grave and irreparable damage to the domestic liquor industry, which stands to lose its market share to imported compounded liquors. DSAP comprises Tanduay Distillers Inc., Emperador Distillers Inc., Ginebra San Miguel, and Destilleria Limtuaco & Co.

DSAP also said the government – through the Department of Finance and the Bureau of Internal Revenue – came up with the law’s implementing rules and regulations without public hearing.

Under the IRR, locally produced compounded liquor is treated differently from imported liquor as the former is taxed twice – first on the raw material, and again on the finished product.  For imported liquor, the tax is on the finished product.

The Sin Tax Reform Law, or Republic Act 10351, was enacted into law last December.

The DSAP argued that some of its members had already paid the government around P1.7 billion in excise taxes on ethyl alcohol inventory as of the effectivity of the law.

The imposition of another excise tax on compounded liquors produced from ethyl alcohol for which excise tax had been paid would translate to very substantial losses not only to the petitioner companies but to the entire distilled spirits industry as well, DSAP pointed out.

“We’re just doing our job and implementing the law.  Each product is subject to excise tax,” BIR commissioner Kim Henares said in a telephone interview in reaction to DSAP’s filing of the petition.

Henares said they have yet to receive a copy of the DSAP petition.

DSAP said Sec. 12 of the IRR is inconsistent with the Tax Code, which does not require manufacturers of finished products to pay excise tax on the finished products as long as the excise taxes on the component distilled spirits have already been paid.

“There is double taxation when two taxes of the same kind or character is imposed on the same subject matter for the same purpose by the same taxing authority within the same jurisdiction during the same taxing period,” DSAP stressed.

DSAP further argued that the rules deprive local manufacturers of equal protection of the law and violate the rule on uniformity of taxation under the 1987 Constitution.

“The flaws could have been avoided had respondents only given those concerned a chance to be heard and to present their concerns. Respondents could have easily accommodated such a process, because the law itself had given more than ample time for the regulations to issue: the Secretary of Finance had all of 180 days to issue the implementing rules and regulations of RA 10351,” DSAP pointed out.

The law aims to raise additional revenues for the government by increasing taxes of so called “sin products” such as alcohol and cigarettes.

In its first year of implementation, the measure is expected to generate for the government additional revenues worth P33.96 billion, of which P23.4 billion will come from cigarettes, P6.06 billion from distilled spirits and P4.5 billion from fermented liquors.

No massive job loss

Meanwhile, the Department of Labor and Employment (DOLE) said the full implementation of RA 10351 is unlikely to entail massive job loss.