Untouchable 'sin' taxes

With less than two months to go before yearend, pressure is building up for government to pass new taxes or strictly enforce existing ones to somehow tamp the annual budget deficit estimate of P250 billion from reaching P300 billion. Either move, however, poses problems.

At the State of the Nation Address early this year, the President gave her strongest push on a long-running campaign to restructure alcohol and tobacco excise taxes. This was supposed to bring in P20 billion annually to the government coffers. So far, this tack does not seem to be moving at all.

The tobacco industry lobby continues to wield a strong hand on an influential group in Congress, which so far explains why nothing much is happening to House Bill 3759 that proposes to levy a uniform tax rate on all types of cigarettes.

The proposed law is easier for the finance department, which has also expressed support for a uniform tax structure to replace the current complex, multi-tiered systems on sin products, particularly cigarettes. Studies have shown that local sin taxes are one of the lowest not only in the region but worldwide.

Uniform tax structure

The proposed uniform tax will slap a P14-tax per pack on all types of cigarettes. Presently, the low-priced brands are taxed at P2.47 per pack, while those medium-priced are charged P7.14 per pack. High-priced and premium brands are assessed P11.43 and P27.16, respectively.

If House Bill 3759 ever gets passed, this will mean prices of low-priced and locally manufactured brands to likely increase six times, while those of premium and international cigarette prices will be most probably be reduced by almost half.

Removing the multi-tiered taxation scheme will also open the competitive environment to new players who want a share of the local market. This is something that the five major tobacco firms today are not willing to do. And this is also reason for why some of the small competitors have (or are planning) to just close shop.

A well-funded lobby

The industry lobby remains strong, with the Philippine Tobacco Institute (PTI) composed of local cigarette manufacturers Fortune Tobacco Corp., Philip Morris Philippines Inc., La Suerte Cigar and Cigarette Factory, Mighty Corp., and Associated Anglo-American Tobacco, at the forefront.

The organization’s activities are well funded, with financing contributions pegged on individual member’s market share. Collected funds cover for expenses not only of numerous meetings with legislators and their staff, but also reportedly to “influence” voting results during crunch time.

The hardcore industry advocates in Congress are understandably those representing tobacco growing regions. But, especially with elections just around the corner, there could be more who would “sympathize” for keeping the status quo – or just agreeing to raise tax rates – than shift to the uniform system.

So far, gauging from the slow progress in rationalizing the current complicated tax structure (and as gleaned in how the industry’s voice was heard in last major campaign in 2003 which led to a tamer Republic Act 9211 or Tobacco Regulation Act), the lobby has been effective.

And this should also be indication of the poor prospect by the finance department of how it can muster an additional P20 billion yearly in taxes from the tobacco industry.

Other initiatives

Among the other key tax reforms that GMA mentioned during this year’s SONA were the rationalization of fiscal incentives, which would contribute P10 billion yearly, and the simplified net income taxation scheme (SNITS), which would add another P5.2 billion.

The measures to rationalize fiscal perks and to simplify net incomes taxes have been approved by the House of Representatives and are just awaiting action by the Senate. In current tough times, the additional P15 billion would go a long way for government – although this is definitely not enough.

The last frontier that our government has resorted to for the longest time has been to sell assets. But this too is beleaguered by the global crisis. Obviously, now is not the best time to sell government-owned properties or shares in even blue-chip companies.

Tougher tax collection compliance

The other side in the campaign to collect more money would be to strictly implement current tax measures. When the government’s two biggest income generators, the Bureau of Internal Revenue and Bureau of Customs, have not just been missing targets but turning in less money than the previous year, perhaps looking at curbing corruption would stand a better chance.

The BIR, which accounts for up almost 70 percent of state revenue, collected only P557 billion in the first nine months, short by P39.2 billion against target; the Customs on the other hand incurred a P36 billion shortfall, with total take reaching only P165.4 billion in the same period.

Both have been pointing to the weak global economy as culprits to their performance shortfall. But we all know about how collection leakages and corruption are valid reasons for the poor performance of these two agencies. Now is a good time to get back to that campaign.

It may be an uphill climb, but it certainly can pay off with more patience. After all, we have nothing else left to work on.

2009 Philippine Collegiate Championship update

The Arellano University Chiefs (NCAA fifth placer) and the University of San Carlos Warriors (CESAFI third placer) barged into the elite “Sweet 16” group at the Champions League-Bacolod zonal qualifying games held at West Negros University Gym in Bacolod City.

At the Cebu zonal games, Adamson University Soaring Falcons (UAAP fifth placer), the Fajardo-led University of Cebu Webmasters (NAASCU champion), and the San Sebastian College-Recoletos de Cavite Baycats are still in the running for two finals slots. University of San Jose-Recoletos Jaguars are virtually out with two consecutive losses.

The De La Salle Green Archers (2008 Philippine Collegiate Champion) starts its title defense by trying to earn a finals seat at the Naga City zonal games from November 12 to 14. Competing against the Green Archers are the St. Francis of Assisi Doves, the University of Nueva Caceres Greyhounds, and the eventual NCAA-South champion.

The Manila zonal games will start on November 10 with the Mapua Cardinals (NCAA sixth placer) leading seven other teams in search for the last two seats in the “Sweet 16” Finals. The other participating teams are: the University of Manila Hawks, Universal Colleges Dragons, La Consolacion College Blue Royals, Central Colleges of the Philippines Bobcats, Lyceum of Subic Bay Cats, the eventual ISSA champion, and the NCAA-South runner-up.

For updates on progress of teams as they continue the journey in the 2009 Philippine Collegiate Championship games, visit the official website, www.CollegiateChampionsLeague.net or send email enquiries to [email protected].

Should you wish to share any insights, write me at Link Edge, 25^th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.