Purisima is batting for the indexation, based on inflation, of the excise taxes on cigarettes and liquor – with the adjustment in the first year a minimum of 20 percent.
Purisima believes that "indexing the excise tax on cigarettes and liquors will correct the tax rate vis-a-vis the price of these commodities."
The DTI head argued that "increasing the tax on liquor and cigarettes is the least burdensome among the population because these commodities are non-essential."
He admitted that indexing the tax on cigarettes would increase the price of the commodity.
He pointed out that "on the bright side, teenagers are less likely to start, and adult smokers are more likely to quit, thus, a health benefit."
Purisima stressed that the passage of four out of the eight proposed tax measures is important, with the most important being the passage of the taxes on alcohol, beverage and tobacco.
The other three measures are the government employees’ lateral attrition, the rationalization of investment incentives and the tax amnesty.
Unfortunately, the lateral attrition, the rationalization of incentives and the tax amnesty measures are considered non-enhancing revenue measures.
Meanwhile, lawmakers batting for fixed uniform increases in cigarette excise taxes argue that keeping the current structure is the best compromise between the Department of Finance’s indexation proposal and the call for a shift to the old ad valorem system.
Cavite Rep. Crispin Remulla, author of House Bill 2871 which seeks a uniform P2 increase for all cigarette brands, contends that "government cannot afford to gamble on indexation or to revert to ad valorem."
Eastern Samar Rep. Marcelino Libanan, for his part, believes that his proposal for a P1 increase for all brands is the best middle ground and guarantees the government P4.5 billion in revenues in the first year.
Libanan points out that his proposal aims to increase government revenues notwithstanding possible consumer downtrading to cheaper brands and would simplify tax administration.
It would also provide a long-term approach to tax increase.
Libanan elaborated that "regular and reasonable tax increases collected over a period of time is preferred over abrupt and sudden peaks because it causes no massive disruptions and allows industry players an opportunity to plan for the future."