Phl loses WTO tax appeal on distilled spirits

MANILA, Philippines - The Philippines has lost its appeal on the tax on distilled spirits as the World Trade Organization (WTO) upheld its original ruling that the country has imposed discriminatory taxes on imported liquor.

Trade and Industry Secretary Gregory L. Domingo said the Philippines will comply with the WTO order. “The Philippines will be given a certain period of time to comply with the order.”

“We are now crafting our strategies to mitigate the impact of the decision to the distillers,” the trade chief added.

The Philippines appealed for the tax on imported spirits as the local distilled spirits industry generated close to $1-billion revenues in 2010. It also employs around five million direct and indirect workers.

Last August, the WTO found merit in the complaint of the European Union and the United States that the tax on imported spirits was unfair to foreign distillers.

“In light of all of the above, we consider that the (WTO appeal) panel did not err in its assessment of the competitive relationship between the imported and domestic distilled spirits at issue in the Philippine market,” it said.

“In our view, studies showing a significant degree of substitutability in the Philippine market between imported and domestic distilled spirits, as well as instances of price competition and evidence of actual and potential competition between imported and domestic distilled spirits in the Philippine market, sufficiently support the panel’s conclusion that there is a direct competitive relationship [in the Philippines] between domestic and imported distilled spirits, made from different raw materials,” it added.

According to the WTO, all distilled spirits involved in the case, whether imported or local, regardless of the raw materials used are “directly competitive or substitutable”.

The Philippines contended that since “all domestic distilled spirits are produced from designated raw materials,” it is subject to the lower flat tax rate of P14.68 ppl. On the other hand, majority of imported distilled spirits are not made from designated raw materials and are subject to the higher tax rates varying from P158.73 to P634.90 ppl.

For the WTO, this meant that “de facto the measure results in all domestic distilled spirits enjoying the favourable low tax, while the vast majority of the imported spirits” are subject to taxes between 10 and 40 times higher.”

The WTOrejected the Philippines’ argument that the measure at issue has no impact on competitive conditions in its market by virtue of the low purchasing power of the vast majority of the Philippine population and of the pre-tax price differences between domestic and imported distilled spirits.