Department of Finance cites need to hike sin taxes

MANILA, Philippines - The Department of Finance (DOF) said there is a need to raise sin taxes so that the industry is not controlled by just one company.

At the same time, Finance Secretary Cesar Purisima said the priority is to improve tax efficiency.

Purisima said that at present, there’s only one company controlling the industry.

“Right now, there’s practically one company having 90 percent market share. There are appendices that prevent entry of new competitors,” said Purisima referring to the current sin tax regime in the country.

The company that controls 90 percent of the Philippine market is PMFTC, the merged entity of Philip Morris and Lucio Tan-owned Fortune Tobacco Corp.

Purisima said the government needs to level the playing field so that other companies can enter the market.

“We need to change the brackets, we need to index inflation so that the tax collections become buoyant. Those are things that we are open to but right now that mandate that has been given to me by the president is to improve tax efficiency,” the Finance chief said.

According to government estimates, the sin tax measure could raise as much as P19 to P20 billion in the first year of implementation, P30 to P40 billion in the second year, P40 to P50 billion in the third year and P60 to P70 billion in the fourth year.

The DOF said that the current tax structure is inequitable because products having the same current net retail price can be taxed differently if one was introduced before January 1997 and other one after 1997.

The government has a target to contain the budget deficit at roughly P300 billion this year or 3.2 percent of gross domestic product (GDP), narrower than the P314.4 billion budget gap incurred in 2010.