Government won’t meet ‘sin’ tax target

The government said yesterday it expected to fall well short of its goal of raising P15 billion this year from a tax hike on alcohol and tobacco after disappointing initial revenues from the measure.

The "sin" tax law, passed in December as the first of a package of revenue-raising steps, was aimed at narrowing a hefty budget deficit that has deterred investors and steadily raised the country’s debt burden.

But economic officials said the revenues from tobacco and alcohol rose just 1.7 percent from a year ago to P19.56 billion in the first six months of the year, falling two-percent short of the government’s target.

"We could not possibly collect that P15 billion, probably only half," Jose Mario Buñag, Bureau of Internal Revenue (BIR) commissioner, said.

Buñag said cigarette firms had moved stocks out of their warehouses before the higher tax took effect. He added that consumers had reacted to the higher tax by shifting to lower priced tobacco products, resulting in lower collections.

The law provided for an increase of up to 400 percent on some variants of tobacco products, with a rise of 3.6 percent and 16 centavos every two years until 2011.

It also mandates a tax increase ranging from 20 to 50 percent for certain types of liquor and spirits.

Collections from the tobacco tax of P10.5 billion in January to June were down 7.4 percent from a year ago while alcohol taxes climbed 14.7 percent to P9.06 billion from the same 2004 period.

Revenues from alcohol excise taxes were 5.3- percent higher than the target in the first half, while collections from tobacco products fell short of target by 7.4 percent, data from the Finance department show.

The government is banking on an expanded sales tax to boost its revenues starting this year.

The Supreme Court froze the broader sales tax hours after it took effect on July 1 in response to an opposition petition questioning its legality. The court is expected to rule on the measure this month, paving the way for its reimposition by September.

The government expects the broader sales tax to help it cut its budget deficit to about 125 billion pesos next year or 2.1 percent of gross domestic product (GDP), sharply down from its forecast of P180 billion, or 3.4 percent of GDP, this year.

Despite the possible shortfall from sin tax collection, Finance Assistant Secretary Gil Beltran has expressed optimism that the National Government (NG) budget deficit target would still be met. "Based on our worst case scenario, even without the recovery from collection from the BIR and the Bureau of Customs, we will still attain the P180-billion budget gap target this year, "he said.

As of end-July this year, NG is ahead of its budget deficit target by P33.6 billion. "We still have a headroom of over P30 billion," he said.