Higher excise tax on alcohol can generate $1.4 billion - think-tank

MANILA, Philippines - The imposition of a higher excise taxes on alcohol and tobacco could generate new funds for public health by roughly $1.4 billion each year, a government think-tank said in a recent report.

According to the Congressional Policy and Budget Research Department, one way for the government to raise new funds for the health sector is to increase excise taxes.

“The use of excise taxes has a high potential in generating more resources. A review of 22 low-income countries shows that by raising tobacco taxes by 50 percent, together these countries could generate new funds for health amounting to more than $1.4 billion each yesterday,” the office said in a report.

At the same time, it noted that there are indeed general issues with the use of excise taxes.

“These include the regressive nature of such taxes, with the poor made to pay a heavier burden, the possible failure of the measure to change people’s behavior, the possible impediment of the growth of the sectors being taxes, the possible growth in dependence on the taxes to boost revenues and ensuring the sustainability of using such measure,” the report said.

The government has been trying to push for the passage of a pending measure seeking to rationalize excise taxes but tobacco companies in the Philippines have been opposing higher tax rates.

According to government estimates, the proposed amendments to the sin tax law 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.

Former Finance Secretary Margarito Teves had pushed for a two-tier excise tax structure to be put in place in 2012 and 2013 until it is harmonized to a single rate in 2014. This was envisioned to replace a four-tier system that resulted into a 640 percent tax differential between low-priced and premium-priced brands.

However, this did not materialize and is unlikely to happen under the Aquino administration as it promised that it has no plans to raise taxes and would instead boost state coffers by plugging revenue loopholes.