Possible amendments — from an easing of provisions to further tightening — to the “sin” tax reform bill are being pushed by divided stakeholders ahead of a consultation sought by the House Speaker Feliciano R. Belmonte, Jr. before legislators vote on the measure.
House Bill (HB) 5727, which aims to increase excise taxes on “sin” products made of alcohol and tobacco, was approved at the committee level last Wednesday. Contentious provisions were eased by the Finance department and it passed with 46 lawmakers in favor and 14 opposed.
Questions still remain on certain facets, however, and Mr. Belmonte last Thursday pledged to meet with industry representatives and concerned parties before the bill is discussed at the plenary level.
“We welcome Mr. Belmonte’s initiative to consult with stakeholders, especially since the proceedings at the House ways and means committee were extremely rushed,” Philip Morris Fortune Tobacco Corp. (PMFTC) President Chris Nelson said on Friday.
PMFTC — which controls more than 90% of the tobacco market in the country — questioned the excise tax rates to be imposed on cigarettes.
“The increase is very high… [in] how the rates are planned over the years,” Mr. Nelson said.
Low-priced cigarettes, for example, will be taxed P10 on the first year of implementation, almost four times the P2.72 imposed today, he said. The tax increases to P22 in the second year.
The sharp rise in taxes will cut demand and create unemployment for the 2.9 million people in the tobacco industry, Mr. Nelson claimed, adding it can also encourage illicit trade.
British American Tobacco (BAT) General Manager James Lafferty, on the other hand, called for a more stringent tax schedule.
HB 5727 proposes an 8% increase in tax rates every two years from 2015 to 2025, a significant change from the original proposal to peg taxes to a consumer price index and adjust these yearly.
The adjustment should be annual instead of biennial, Mr. Lafferty said, since “the industry is notorious for ‘front-loading’ volumes just prior to the [tax] increases.”
“A once-every-two-year increase provides plenty of leeway to execute such a volume-loading scheme. By moving to annual increases, this would reduce the vulnerability to this scenario and hence provide more government revenue,” he said in an e-mail.
From the perspective of BAT, a newcomer in the tobacco industry, more can be done to level the playing field.
The reform could abolish all prior classifications and “zero-base” tobacco brands, Mr. Lafferty said, instead of the proposal to retain the current categories and reclassify the brands every two years.
Under the law, tobacco products are placed into four tiers depending on their net retail price. Low-priced brands are taxed less, while premium ones are taxed more. Brands in the market before 1997 are categorized based on 1997 prices while new entrants are classified based on current prices, which tends to push them up to the higher tiers.
On the part of civil society group Action for Economic Reforms (AER), HB 5727 should push for a unitary tax system.
“We are firm in our belief that a simpler tax structure will still be best for both health and revenue goals,” AER senior economist Jo-Ann Latuja said in a separate e-mail.
The approved bill reduces the tax tiers to only two for tobacco products and three for alcohol products. It was a departure from the original provision which mandated a single tier.
“We also think that a yearly adjustment to inflation is necessary to avoid the current practice of front-loading by the tobacco companies,” she said.
The AER said that while the original version of HB 5727 was the “ideal,” its probability of getting approved by the lower chamber was “positive but uncertain.”
“We, as part of the civil society, consider the approval of the bill by the committee a milestone as it has already been 15 years since… it got out of the committee with the key reforms still intact. But this is just the first round. We’re just getting warmed up,” Ms. Latuja said.
Despite the conflicting views on HB 5727, House ways and means committee chairman Rep. Isidro T. Ungab (3rd district, Davao City) said there was enough time for him to convince legislators to support the bill.
First, the country made a commitment to the World Trade Organization (WTO) to overhaul its excise tax system by March 2013, he noted in a statement.
The Philippines lost a trade dispute at the WTO last year, as the United States and the European Union claimed that the excise tax system discriminated against imported distilled spirits.
Moreover, HB 5727 can infuse much-needed revenues to the government and its universal health care program, Mr. Ungab said.
In a separate statement, the Budget department lauded the approval of HB 5727 and its impact on state revenues.
The original version of HB 5727 was expected to bring in at least P60.7 billion in revenues — the bulk of which would go to critical health services.
The House ways and means committee expects to release its committee report this week and then the Palace-backed bill will be discussed at the plenary.
Mr. Belmonte earlier said HB 5727 would “sail through” the House before Congress’ second regular session ends on June 7.
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By Diane Claire J. Jiao and Monica Joy O. Cantilero
Source: BusinessWorld, May 14, 2012
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