DOF supports higher taxes on sin products

MANILA, Philippines - The Department of Finance (DOF) has reiterated its support to pending measures seeking to raise taxes on alcohol and cigarettes or the so-called sin products.

In a speech in Singapore during the ASEAN-India Business Conference last week, Finance Secretary Cesar Purisima said that sin tax reform law would make the industry more competitive.

“We’ve launched the sin tax reform law so we can make it more competitive,” Purisima noted, referring to the sin tax measure as one of the proposals that could help improve the economy, as it would raise revenues.

However, tobacco farmers from Northern Luzon welcomed moves by the House of Representatives to suspend committee hearings on excise taxes on sin products.

In a statement, the farmers said they are grateful to President Aquino and the House of Representatives for suspending talks on excise tax.

The farmers said they would remain vigilant on moves or initiatives to raise sin taxes. They earlier wrote letters to Speaker Feliciano Belmonte Jr. and Senate President Juan Ponce Enrile, expressing fears that excise tax rates may be adjusted, to their detriment.

“We write to express our concern about reports on proposals to increase excise taxes on cigarettes. The said bills are being supported by the Department of Finance,” the farmers said in their letters.

They strongly believe that if tobacco taxes increase, cigarette companies would have lower demand for raw tobacco leaves.

“In the end, it will be us farmers who will lose our means for livelihood,” they said.

Philippine Tobacco Institute (PTI) president Rudy Salanga, meanwhile, observed that proposals to “enhance” or “restructure” tax laws would severely affect the profitability of all companies in the industry, and might even result in closure of the smaller players.

“I call on policy makers to approach these proposals with caution. We can not conduct experiments on the tax system which could have the effect of wiping out an entire industry and adversely affecting all direct and indirect stakeholders,” Salanga said in a statement.

“The existing excise tax regime on tobacco products has generated revenues beyond the target of government. It provides a stable and predictable source of income for the government, which can not be said of other tax classes. Why is it being targeted for amendment? Why can’t government review instead the other taxes that are not contributing to the country’s coffers? “ Salanga also said.

The Finance department is backing proposals to raise taxes on sin products so that the industry is not controlled by just one company.

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.

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 department 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.