Sin tax amendment bill hits snag

by Carmela Fonbuena,

Posted at May 26 2009 12:55 PM | Updated as of May 27 2009 12:25 AM

Tobacco industry allies in Congress placed Finance Secretary Margarito Teves on a hot seat during a hearing on the proposed amendments to the sin tax law on Monday.

With the global economic slowdown as backdrop, Teves stressed the country's need to raise revenues, while the congressmen countered with the need to protect jobs, especially that of the tobacco farmers.

During the hearing of the House Committee on ways and means, pro-tobacco industry congressmen ganged up on Teves, citing loss of livelihood sources if the finance department-backed House Bill (HB) 3759 is implemented.

HB 3759 by Rep. Danilo Suarez slaps all brands of cigarettes with just one and uniform P14 tax per cigarette pack.

Currently, the Philippines follows a complicated four-tier sin taxation system where the excise tax for low-priced, mid-priced, high-priced and premium brands varies.

Since the current tax rate for the low-priced brands is just a fraction of that imposed on premium brands, the congressmen described the proposed bill as "discriminatory."

House ways and means committee chair Antique Rep. Exequiel Javier noted that the Suarez proposal could result in as much as 527 percent increase to P14 from P2.23 per pack.

"I think the intention of [this bill] is to kill the industry," Cagayan De Oro Rep. Rufus Rodriguez remarked. 


Rodriguez said that the proposed increase in tax imposed on cigarettes could lead to jobs being lost. "The program to give employment will be negated by increasing taxes and making it difficult for the companies to continue and it will result in the layoff of employees."

Ilocos Sur Rep. Eric Singson, meantime, noted that a new sin tax proposal comes at a time when production inputs, like Virginia Tobacco, have been significantly increasing.

"The prices of Virginia Tobacco have increased significantly in the last two years. The prices of tobacco right now have increased 100 percent. With an average of P45 before, now it's almost P90 per kilo. If we restructure again, it will significantly affect our farmers and our livelihood," said Singson.

Farmer groups and reprsentatives of the cigarette manufacturers present in the hearing were also given a chance to air their objections to the proposed law. One of them was lawyer Vicente Lasam of Tuguegarao-based Itawes Foundation. He expressed apprehension that "any increase in price will definitely dampen demand for tobacco in general." 

"Of course, everybody accepts that there is come kind of health hazard in smoking. But smoking is pleasurable as in many other things. Instead of sin products, these products should be called pleasurable products," Lasam said in jest.

Health costs

Teves explained that the health and social costs of smoking deplete the government's resources, which should be spent in, for example, improving education, better pay for government officials, building roads, among others.

Instead, Teves explained that "A large part  of those resources will have to be spent addressing health issues. Cigarettes have warning labels, but it doesn't stop anybody who can afford or those who have means to take care of their health. That's fine. But what about the small people who cannot afford medicines?"

Teves also clarified that smokers who are poor would be forced to quit if the sin taxes push cigarette prices to levels they cannot afford anymore.

The finance secretary explained that this should bring positive results instead of having the poor suffer from cigarette-induced illnesses.

"They won't be able to afford [the medicines] unlike the high income group. The high income group is the one who will continue to buy even when the prices are high. There will still be additional revenue," Teves said.

When sourcing for additional revenues, Teves said that, "We try to determine which individuals or which corporations would have to be considered in sharing the burden in generating revenues. In the case of tobacco and other products, distilled and spirits, we think this is less sensitive than other products."

Teves said there is still room for adjusting the sin tax rates since cigarettes have remained affordable in the Philippines compared to other countries.

"Over time, prices have been moving up here in the Philippines but nothing really happens much to the industry. There is a really a substantial demand in spite of these adjustments in prices," Teves added.

Budget deficit

"We know from experience that the simpler the structure, it is easier to collect taxes," Teves explained to the committee.

By simplifying the sin tax system imposed on cigarettes and alcohol, Teves said the government stands to earn P20 million in its first year of implementation.

Economic managers are banking on legislated sources of additional revenues to help plug the widening budget deficit. As the global economy continues to slow,  the deficit target has been pushed up from P40 billion to P199.2 billion.

With higher government spending to provide social safety nets and keep liquidity flowing, economic managers have made the sin tax proposal the centerpiece of its efforts to buoy up revenues. Various multilateral organizations have been breathing down the economic managers' necks to ensure that the country keeps its fiscal health in check.

The Bureau of Internal Revenue (BIR) has been missing its tax collection goals, even in April, a seasonally high period for collections. The finance department said that "If we don't [increase revenue], the [revenue] numbers will be worse, and the deficit will be larger."

Teves admits it's going to be tough to hurdle the committee. "It's a very tough bill to handle. But we're not giving up. We'll try to come up with some more information, hopefully more convincing ones," Teves told after the hearing.

"It's not that easy when you have a number of other invited guests who are not in favor of the bill," he added.

Representatives of cigarette companies and tobacco cooperatives, who were present during the hearing, booed the arguments of Teves and supported the concerns of the congressmen opposed to increasing taxes on sin products.