Gov’t reports 30% drop in tobacco tax collection

After Congress refused to index the excise tax on tobacco to inflation, revenue reports indicated that the Arroyo administration suffered a 30 percent decline in its revenue collection from the taxes on tobacco products during the first two months of the year.

Data from the Department of Finance (DOF) showed that although total collections in January and February surpassed expectations, there was a deep cut in tobacco tax collections compared to 2004 collections.

Reports from the DOF indicated that the total excise tax collections for January to February amounted to P8.138 billion, lower than the 2004 level of P8.268 billion but still more than the P6.036 target for the period this year.

This amount included the excise taxes on alcohol products, tobacco products, petroleum products, mining and mineral products, tobacco inspection fee and taxes on miscellaneous products.

According to the DOF, the excise tax on alcohol alone generated revenues amounting to P3.096 billion during the first two months of the year. This was about 42 percent more than the P2.18 billion target for the period and almost 30 percent more than the amount collected over the same period in 2004.

The performance of the tobacco sector, however, was drastically different.

Collection of the excise tax on tobacco amounted to P2.295 billion for the first two months, over 50 percent in excess of the P1.522-billion target.

However, this year’s collection was 30.5 percent lower than last year’s collection of P3.302 billion.

Latest available data indicated that the first quarter excise tax collection amounted to P4.34 billion but the DOF has not disaggregated the specific taxes collected to determine if the declining trend in cigarette excise tax collections was sustained throughout the quarter.

The quarterly collection, however, was 1.47 percent lower than the target and 25.69 percent lower than the amount collected in 2004 which was equivalent to P5.884 billion.

The decline in the revenue collections from the sale of tobacco and alcohol, however, was not unexpected after the Arroyo administration has agreed to water down its excise tax proposal and junked the original idea of indexing the tax to inflation.

Instead, the amendments to the law imposed a combination of a rate increase and a flat annual tax increase until 2011 regardless of movements in domestic prices.

As a result, the revised excise tax structure was expected to generate only P7.09 billion on the first year instead of P14 billion that was originally targeted under the first form of the DOF proposal.

The revised version imposed a 12 percent increase in the excise tax on tobacco products on the first year, plus 40 centavos per pack. The tax would increase by another 3.6 percent plus 16 centavos per pack every two years until 2011.

Data from the DOF indicated that because of the failure to index the excise tax to inflation, government collection have actually declined since 1997 despite the increase in sales.

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.