Macroeconomic Policy News

Government eyes P60 B/yr from proposed excise tax on ‘sin’ products

MANILA, Philippines – The government expects to earn P60 billion a year from a bill seeking to restructure excise taxes on alcohol and tobacco products.

The funds to be raised from the Department of Finance-backed measure would significantly help plug the government’s budget deficit, fiscal authorities said over the weekend.

The DOF said that borrowing to finance the deficit cannot continue forever. Thus, there is a need to rely more on its own resources.

“Borrowing will only lead to heightened fiscal risks. Clearly, the country needs to rely more on its own resources. It is for this reason that this bill aims to enhance the revenue-generating potential of the tax system by proposing to restructure the excise taxes on alcohol and tobacco products,” according to the latest draft bill of a new “sin tax” measure which has the support of the finance department.

The DOF said the measure seeking to restructure the current excise tax system would yield an additional P60 billion a year.

From the current multi-rate specific structure of the excise tax on tobacco and alcohol products, the bill aims to create a simpler structure by adopting a unitary rate.

“With a unitary rate, problems attendant to the current structure, such as unfair tax treatment between and among tobacco and alcohol products will be addressed. A unitary rate will lend the tax structure more revenue-productive since it will avoid the shifting of demand to the least-taxed brand of tobacco and alcohol products,” the draft bill said.

Furthermore, the measure proposes a three-year transition period in unifying the excise tax rates on cigarettes and distilled spirits. However, the tax structure for fermented liquor will be immediately unified on the first year of the reform.

More importantly, the measure proposes an automatic adjustment of the tax rates using the tobacco and alcohol indexes established by the National Statistics Office (NSO).

“The adjustment will allow the specific tax rates to track inflation, thus, maintaining the buoyancy of the revenues from this source,” the draft bill noted.

Without a new measure by 2013, the finance department estimates that the government will lose P2 billion to P2.4 billion in additional revenues. This represents the additional revenues generated from sin taxes under Republic Act 9334 or the indexation of excise tax on tobacco and alcohol products.

The law, signed in 2004 by President Arroyo, called for an 8% increase in the excise tax rates on tobacco and alcohol products every two years starting in 2007.

The last adjustment takes effect this year, according to the law.

At present, 90% of the Philippine tobacco market is controlled by PMFTC, the merged entity of Philip Morris and Lucio Tan-owned Fortune Tobacco Corp.

The DOF said the current tax structure is inequitable because products having the same current net retail price can be taxed differently if one was introduced before January 1997 and other after 1997.
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By: Iris C. Gonzales
Source: abs-cbnnews.com, Sept. 19, 2011
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