Excise taxes on sin products to drop further by 9.5% to P52B

Despite the increase in sales and the acceleration in the prices of tobacco and alcoholic products, the collection of excise taxes on these so-called sin products is expected to drop by 9.5 percent to P52 billion this year.

With tax rates nailed to obsolete tiers under existing laws, the Department of Finance (DOF) estimated that excise tax collections would continue to fall until the rates are restructured and pegged against inflation.

In its presentation before the Congress Committee on Ways and Means, the DOF said the government’s excise tax collections have been on a steady decline since 1997 when the Comprehensive Tax Reform Program (CTRP) was first implemented.

Data from the DOF indicated that in 1997, the excise tax collection from alcoholic beverages, tobacco and other excisable products was at P63.04 billion.

By 2002, the DOF said this collection has dropped to P57 billion before dropping further to P56.894 billion. This year, the DOF estimated that this would drop even more to roughly P52 billion.

The DOF reported that had the excise tax adjustments been approved last year, it would have generated at least P6.54 billion in incremental tax revenues from the indexation of the duties on cigarettes and liquor, about 20 percent more than the projected revenues from sin taxes in 2003.

The Arroyo administration is preparing to resubmit two measures 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.

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

Despite these reforms, however, 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.

A separate survey conducted by the National Tax Research Center showed that many of those classified as low-priced brands are 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 DOF, excise tax collection from alcohol and tobacco products have been declining despite the changes under the CTRP as the structure was non-responsive to inflation and there were serious weaknesses in tax administration.