Drilon hits Philip Morris for 'flip-flopping' on sin tax


Posted at Aug 29 2012 01:09 PM | Updated as of Aug 29 2012 09:09 PM

MANILA, Philippines - Senator Franklin Drilon criticized tobacco giant Philip Morris for "flip-flopping" on its stand on the sin tax bill.

"The government’s proposal for a unitary or single excise tax rate for all brands of cigarettes under the Sin Tax bill was even lobbied for by Philip Morris (in 2003), but, in a twist of fate, the tobacco firm is now pulling back on the proposed scheme," he said in a statement.

Now, as the Senate deliberates on the sin tax bill, Philip Morris Fortune Tobacco Corp. is pushing for at least three tiers of tobacco excise tax. US-based Philip Morris and Lucio Tan's Fortune Tobacco merged in 2010 and now control over 90% of the local tobacco market.

"Philip Morris is opposing the administration’s proposed measure, citing the unitary tax as among the objectionable features.  Yet, a letter of Philip Morris (PM) dated February 5, 2003, through Managing Director George Farah, revealed that PM supported a uniform specific tax for cigarettes," he said.

In 2003, Philip Morris sent a letter addressed to then-President Gloria Macapagal-Arroyo, recommending a change from a four-tier specific system to a one rate tax system.

Drilon quoted the letter:

"In brief, our proposal is that the current four (4) tier specific system should be changed to a single tier specific system over a period of 3 years. In the first year, two specific tax tiers should replace the current four (4) tier system, with a reduction in the gap between the two tax tiers in the second year. In the third (3) year, the two specific tax tiers should be merged into a single specific rate applied equally on all cigarettes.

This proposal should increase estimated excise tax collection on cigarettes by P8.5 billion or 43.8% above 2001 actual collection. Over 3 years, this proposal is estimated to increase tax collection by 91.8% compared with 2001…"

The senator noted that Philip Morris had even enumerated the advantages of a one rate excise tax on cigarettes:

“A single specific tax should result in an increased excise tax collection. Tax administration for the Bureau of Internal Revenue will be easier with a single specific tax rate on all cigarettes since only the volume sold, and not the price at which they are tax classified, shall be the sole determinant of tax revenues to government."

"A single specific tax rate for all cigarettes is used in several Asian countries including Singapore, Malaysia and Hong Kong, and its adoption by the Philippine Government will align local tax policies with those of its neighbors. A single tax rate will promote a level playing field for all manufacturers."

Drilon noted that Philip Morris has agreed to a uniform excise tax for all brands, and there is no need for multiple rates for different brands.
"Now that Philip Morris has conceded the unitary or single tax, the question that the committee must ask is what is the most effective rate for the sin tax to serve its primary health goal, or what my colleague Senator Ralph Recto describes as the sweet spot that will not only generate revenues for government but will dramatically curb smoking and binge drinking, and thus reduce the economics costs in terms of health care, productivity losses, and pre-mature death losses," he said.

The Senate is currently deliberating on the sin tax bill, which seeks to impose higher taxes on alcohol and tobacco products, in order to raise revenues for healthcare.