NG sees add’l P6.5-B from ‘sin taxes’

The government expects to generate at least P6.54 billion in incremental tax revenues from the indexation of excise taxes on cigarettes and liquor, or 20 percent more than the projected revenues from sin taxes in 2003.

The projected additional revenues resulted from simulations made by the Congressional Planning and Budget Office (CPBO), the economic research unit of the House of Representatives, based on actual 2002 cigarette and liquor sales.

There are two legislative measures pending in Congress for the automatic indexation of the tax rates and tax brackets once every two years on the cumulative inflation rate and periodic classification of the excisable products.

When passed and implemented, the CPBO said the proposed measure would generate an additional P4.26 billion from excise taxes on cigarettes and about P2.28 billion from the sale of fermented liquor.

In its policy advisory, the CPBO said the fact that excise taxes were less elastic compared to overall collection of the Bureau of Internal Revenue indicated that there were structural defects in the present tax system that should be addressed or plugged.

Under the present system, the CPBO explained, a multi-tier structure is adopted, applying a high rate on high-priced brands while applying lower rates on low-priced products.

Despite these reforms, however, the CPBO said the revenue goal for tobacco products in 2002 fell by 26 percent from P25.4 billion to only P18.7 billion even with the 12-percent increase in tax rates.

The revenue goal for alcoholic beverages, on the other hand, also fell from P16.4 billion in 1998 to only P14.7 billion in 1999, with the BIR collecting only 85 percent of total revenues.

The Department of Finance has been arguing that the one-time adjustment in excise tax on the so-called sin products in January 2000 was not enough since the cumulative inflation from 1997 to 2001 had reached 37.3 percent.

A separate survey conducted by the National Tax Research Center showed that many of those classified as low-priced brands were now selling at higher prices and could have been converted into additional collection if Congress ordered a reclassification and corresponding adjustment in the tax rate.

According to the CPBO, excise tax collection from alcohol and tobacco products have been declining despite the changes under the Comprehensive Tax Reform Program of 1997 because the structure was non-responsive to inflation and there were serious weaknesses in tax administration.

The CPBO said these defects could be addressed if the excise tax is automatically indexed to inflation and if the law would allow the periodic classification of excisable products.