Battle over sin taxes begins

By Lois Calderon, ABS-CBN News Channel

Posted at Feb 22 2012 09:12 AM | Updated as of Feb 23 2012 12:41 AM

MANILA, Philippines - The government wants to raise excise tax collections and the biggest cigarette maker is fighting back.

And some lawyers are not convinced about the government's plan.

The government wants to replace a 4-tier tax system with a single rate. It says this will generate P60 billion a year.

Internal Revenue Commissioner Kim Henares said older brands whose taxes are based on 1996 prices will be the hardest hit. That means Philip Morris Fortune Tobacco Corp., the product of the 2010 merger of the American company's local operations with tycoon Lucio Tan's flagship business.

"Aside from the four tiers, there's annex D classification, where's there's price protection for certain brands, that whole thing will be removed... That Annex D which holds the majority of the market now will actually be eliminated," Henares said.

"So if you look at it, it's really those brands in annex D that will be affected and not so much the Tiers 1, 2, 3 and 4."
Philip Morris Fortune Tobacco insisted raising their taxes won't boost revenue or reduce smoking, but will just push smokers to untaxed cigarettes.

"To put it bluntly, today the lowest tax is P2.75 per pack. Under the DOF proposal, P30, that's over a thousand percent. That's unheard of... I see the impact even more because the illicit trade will grow exponentially," said Chris Nelson, the company's country manager.

Philip Morris Fortune Tobacco said the government should first plug tax leakages but has instead not responded to its offers to help.

"One of Philip Morris system is Codent. It's for tracking and tax encoding and reconciliation. The secretary of finance said 'Come and see me. We'll discuss it.' We wrote, we offered it, no response," Nelson said.

The House of Representatives ways and means committee is currently discussing the reforms on the excise tax regime on tobacco and alcohol.

Lawmakers argued that a single tax rate will shift demand to high-end cigarettes, whose prices would get closer to low-priced brands. Some of them think increased collections have a more important victim that cigarette makers -- tobacco farmers.

"I want to know which ... so I'd know how that will affect the tobacco farmers....If you can't convince me that farmers aren't hurt, I'm sorry but I can't go with your proposal," said Zambales Rep. Mitos Magsaysay, at a House hearing on Tuesday.

Quezon Rep. Danilo Suarez, House minority floor leader, added: "We're going to oppose this bill if without a comfort level to the tobacco farmers."
Higher excise taxes were on top of the list when the government last raised taxes in 2005. But the proposal was watered down, forcing the government to raise the value-added tax (VAT) instead.