Ex-government officials cite huge potential of sin taxes

By Alexis Romero, The Philippine Star

Posted at Jul 28 2011 08:03 AM | Updated as of Jul 28 2011 06:51 PM

MANILA, Philippines - Former senior government officials have cited the huge potential of sin taxes as revenue sources, saying these could augment state funds without going against the Aquino administration’s “no new taxes” policy.

Former socioeconomic planning secretary Solita Monsod said the bill reforming sin taxes would generate state revenues and widen the tax base.

“It (sin tax bill) is not a new tax and it will increase the tax base,” Monsod, who served as socioeconomic planning secretary during the time of former President Corazon Aquino, said in a recent interview.

Monsod said the bill, which aims to index the sin taxes to inflation, is a “win-win solution” as it would also discourage unhealthy habits. “If you don’t want to pay the tax, don’t smoke. It would be for greater good,” she said.

Monsod noted that the government has already generated billions from sin taxes or those levied on alcohol and tobacco products.

“Can you imagine what could have been done if we push (the sin tax measure) ahead?” she said.

The reformed sin tax bill could generate as much as P70 billion in additional revenues annually, the Finance department said.

Republic Act 9334, which was enacted in 2004, mandates tax increases on alcohol and tobacco products beginning January 2005 and every two years thereafter until this year to discourage people from patronizing the so-called sin products.

Tobacco products and alcohol were subdivided into various classifications with corresponding tax rates. Some experts said this system has resulted in revenue erosion since the taxes are not indexed to inflation or the rise in the level of prices of goods.

Bills seeking to reform and simplify the sin taxes have been filed during the previous Congress but these were bypassed.

Roberto de Ocampo, who served as finance secretary under the Ramos administration, said the taxes on sin products have a huge potential as a revenue source. “The biggest potential is in sin taxes. There can be tweaking done there to raise revenues,” Ocampo said.

“One of the basic principles in taxation is you tax things that do not appear to have an obvious public good to society. Sin tax is one of them,” he added.

Ocampo agreed that the government could consider reforming existing taxes to keep its vow not to impose new taxes.

“There may be other avenues so that the pledge (not to impose new taxes) could stay within principle and enhance revenue raising efforts. There are…taxes on the books which, if properly adjusted, may (enable the government) to accomplish both,” he said.

Former Finance Undersecretary Milwida Guevara, said the Aquino administration should have a clear road map on increasing state revenues.

“If you can’t control the deficit or raise revenues, you’ll not get over or address debt problem,” she said.

Guevara called for the passage of a measure rationalizing redundant and overgenerous fiscal incentives. “There is an evidence that tax incentives are overgenerous and redundant and inefficient and provides opportunity for tax avoidance,” she said.

The government expects this year’s deficit to be equivalent to 3.2% of the gross domestic product or P290 billion.