SONA one week after: Sin tax reforms deferred

By Jun Vallecera, Business Mirror | 08/06/2009 1:51 AM

MANILA - Apparently considering the tobacco and liquor industry position that the planned new unitary excise-tax scheme was “ill-timed and [will] likely cause more harm than good” to the bigger goal of optimizing revenue flows, the government has shelved the plan until 2012, Finance Undersecretary Gil Beltran said on Tuesday night.

The postponement came one week after President Arroyo delivered her State of the Nation Address last July 27. In her speech, President Arroyo said that in her last year in office, her administration “will work to increase the tax effort through improved collections and new sin taxes to further our capacity to reduce poverty and pursue growth.”

Taxes, she stressed, “should come from alcohol and tobacco and not from books. Tax hazards to lungs and livers; do not tax minds."

The Arroyo administration's recent decision also came a few days after the World Trade Organization (WTO) stepped up its campaign for the government to reform its excise-tax schedule, acknowledged as one of the most generous to alcohol and tobacco products that do the most harm to Filipino health.

Finance Secretary Margarito Teves has informed key members of Congress of the postponement. “Secretary Teves both met with President Arroyo and with key members of Congress before arriving at the decision,” said Beltran.

He said Teves fully understood the risks presented by adopting the unitary excise scheme at this time of weak domestic demand, which could throw alcohol and cigarette manufacturers into chaos.

The government collects excise of about P80 billion a year and the proposed unitary excise-tax scheme was expected to boost it by at least P20 billion on the first year.

Beltran said the decision was particularly difficult for Teves, who has been under WTO pressure to correct the imbalances in tax treatment of the various alcohol and tobacco products.

According to Beltran, the most recent WTO “visit” was only about two weeks ago when a note verbale was delivered to the Department of Foreign Affairs concerning issues raised by sin-product manufacturers from the European Union and the United States.

“The WTO has been on us the last two years, complaining about the way we supposedly discriminate against foreign manufacturers of excisable products. They have been threatening to sue us ever since,” said Beltran. He said the threat of united action from WTO signatory countries was impressed upon congressional leaders by Teves when he recently met with key legislators, who gave him a commitment to pursue the reforms in 2012.

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