PROPOSED legislation simplifying the excise tax regime and increasing rates imposed on so-called “sin” products has been drafted by the Finance department.
The bill, which has been identified as a priority by the government, is being touted as both a tax reform and a health measure as it is aimed at increasing revenues and at the same time discouraging consumption of alcohol and tobacco.
It also expected to address a World Trade Organization (WTO) ruling declaring Philippine taxes on imported liquor as unfair.
“The [excise tax system] is ripe for a major overhaul in order to make the structure simple, fair and responsive to the objectives of the government,” the explanatory note of the still unnumbered and unsponsored bill states.
From the current system that imposes various rates depending on prices and ingredients, the Finance department is pushing for a “much simpler structure by adopting a unitary rate.” A three-year transition period, where tax rates will be gradually increased starting 2012, was also provided in case the new system “proves too abrupt” for affected sectors.
Distilled spirits such as whiskey, brandy, rum, gin and vodka will be taxed according to their alcohol content under the new bill. Those that contain 45% alcohol and below will be taxed P42 per proof liter next year, increasing to P80 in 2013 and P150 the following year. Distilled spirits that have a more than 45% alcohol content will be charged P150 per proof liter next year, P233.73 in 2013 and P317.45 in 2014.
Under the National Internal Revenue Code of 1997, distilled spirits are currently taxed only P11.65 per proof liter if they are made from selected ingredients such as nipa, coconut and sugar cane. Those made from other raw materials are taxed anywhere between P126 to P504 per proof liter depending on their price.
Sparkling wines, meanwhile, will be taxed P300 regardless of proof starting next year in the Finance department proposal, while still wines will be taxed P50.
Beer, lager and ale will be taxed P25 per liter across the board next year, higher than the current charges of P8.27 to P16.33, depending on the price of the product.
For tobacco products, cigarettes packed by hand will be taxed P14 per pack next year, increasing to P22 in 2013 and P30 in 2014. The proposed rates are a significant jump from the P2.72 imposed per pack today.
Cigarettes packed by machine will be taxed P30 per pack starting next year if they cost more than P10. Cigarettes priced at P10 or less will have a graduated tax rate of P14 per pack in 2012, P22 in 2013 before going up to P30 in 2014.
Cigarettes packed by machine are currently taxed only P12 or P28.30 depending on the price of the pack.
For cigars, the government wants to collect P200 in taxes per cigar starting next year.
“The new rates reflect current prices,” Finance Assistant Secretary Ma. Teresa S. Habitan yesterday said, “since the current taxes are still mostly based on 1996 prices.”
The Finance department bill also provides for yearly adjustments to tax rates based on an appropriate index published by the National Statistics Office.
“The adjustment will allow the specific tax rates to track inflation, thus, maintaining the buoyancy of the revenues from this source,” the bill states.
The proposal also simplifies the classification of “sin” products and removes the implied preference for other brands, Ms. Habitan said. The WTO ruling, realeased earlier this month, upheld a complaint by the United States and the European Union that lower rates for products made with locally available materials were discriminatory.
She also said the bill would help deter smoking and drinking.
“It levies taxes based primarily on the volume of alcohol or tobacco, ensuring that the more people consume of these ‘sin’ products, the more costly it is for them,” Ms. Habitan explained, adding that people will also be prevented from merely shifting to cheaper, less-taxed products since there is a unitary rate imposed.
The proposed excise tax reform is expected to yield P60 billion in revenues for the government.
A portion will be allocated to finance the Universal Health Care program, which seeks to insure the poorest 20% of the population. The allocation will be computed based on the annual requirement of the Health department.
Under current law, only 2.5% of excise tax revenues are coursed to the Philippine Health Insurance Corp. for the National Health Insurance Program.
Another 2.5% is remitted to the Health department for a disease prevention program.
Some of the revenues will also be coursed to “promote economically viable alternatives for tobacco farmers and workers,” the Finance department bill states.
Ms. Habitan said, “The tax reform might eat into their industry, but they won’t be left unserved. The government will help them get alternative livelihood.”
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By: Diane Claire J. Jiao
Source: Business World, Aug. 23, 2011
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