'Bloody' sin tax deliberations

The third regular session of the 15th Congress has opened, and one of the top items on P-Noy’s administrative agenda is the passage of the “sin” tax bill that calls for an amendment of the current alcohol and cigarette tax structure to yield more revenues for government.

Passed in the lower chamber during the last regular session by an overwhelming majority vote of 210, House Bill 5727 aims to increase the price of a pack of cigarettes from 52 percent to 79 percent during the first year of implementation.

Meanwhile, the proposed increase in taxes for alcohol products will be on a graduated basis with prices of distilled spirits and beer increasing by four percent to seven percent during the first year.

Should the P-Noy administration muster enough support among our senators, an additional P33 billion in revenues on the first year is expected. A large part of this collection is earmarked to bolstering the health care system’s budget.

Strong lobby to maintain status quo

Even before the current Congress opened, the lobby against reforming the sin tax structure, particularly on the tobacco side, started to rear up its ugly head. In fact, Senate president Juan Ponce Enrile was quoted to have said that Senate deliberations on the bill would be “bloody.”

Those who have been heard of late as against P-Noy’s sin tax restructuring measure and maintaining instead the current 16 year-old structure are the merged interests of Philip Morris and Fortune Tobacco, both controlling over 93 percent of the cigarette market, and an organization purportedly representing the interest of “displaced” tobacco farmers.

The Philip Morris-led initiative has been vocal about the possibility of tobacco consumption falling by as much as 26 percent, and warned that there would be a flood of counterfeit as well as smuggled cigarettes in the country.

Meanwhile, the Philippine Tobacco Growers Association has taken on the cudgels for tobacco farmers mostly from the northern provinces of Luzon, warning that many will be displaced should Philip Morris’ warning of the consumption drop occur.

Such lopsided arguments espoused by the interest groups against the sin tax reform had been extensively discussed in the Lower House by our lawmakers during the last Congress, but these will again be ventilated when the Senate opens its own deliberations.

Uphill battle

It could indeed be an uphill climb for P-Noy’s government to convince majority of the Senators that this much-needed reform on a lopsided taxation structure on cigarettes and alcohol during the last two decades has robbed billions of pesos in potential tax revenues.

The existing sin tax collections year-on-year have contributed far less than what our government’s public health care delivery system has been spending on tobacco- and alcohol-related illnesses.

Worse, the low level of taxes has exacerbated smoking preference among our youth, making the Philippines as one of the countries in the world with the highest cigarette smoking incidences. 

In fact, the Philippines continues to have one of the cheapest cigarette and liquor retail prices, making the vices extremely affordable to students.

Watered down version

Some senators who have strong vested interests in supporting the local tobacco manufacturing sector have been extremely vocal about sin taxes, and have shown partiality in watering down the version approved by the lower chamber.

One of the changes being pushed is for a reduction in the initial taxes slapped on cigars and cigarettes, not necessarily to mitigate any potential drop in consumption, but, as they claim, to ensure that the P-Noy government’s aim of collecting a hefty amount in new taxes will be realized.

Just how much reduction the Department of Finance will agree on, though, is very much debatable. Already, Department of Budget and Management Secretary Florencio Abad has reiterated the need to collect the maximum amount of P33 billion from a revamped sin tax structure.

Senate versions

In the Senate, there are two versions that had been introduced. The first, SB 2764 by Senator Panfilo Lacson, notes that the current cigarette tax structure is characterized by multiple rates, discrimination against brands that were introduced after 2003, and a non-indexation to price movements.

A second version, SB 2998 by Senator Miriam Defensor Santiago, seeks to simplify the current tax structure and to make it effective and efficient to enhance revenue generation but at the same time curb tobacco consumption.

The bill also calls for the additional tax collections to be earmarked for universal health coverage, disease prevention, health promotion campaigns, and support for tobacco farmers whose livelihood may be affected by the new tax structure.

In the Lower House’s bill, 15 percent of the excise tax collected from any new law will be set aside from tobacco farmers who may be displaced by a possible drop in tobacco production sales.

Keeping essential issues paramount

In the next weeks, we will see if the Senate will pass its own version or simply adopt HB 5727 in toto. This will then be followed by a bicameral conference committee that will be convened to reconcile the respective versions of the House and the Senate.

A consolidated version of the bill will then be returned to the House and Senate after it has been approved by the bicameral committee, and then to Malacañang for the President’s signature.

Whatever form the deliberations will take, it is imperative that the new “sin” tax law conforms to the essential issues: (1) curb cigarette consumption to protect the quality of health of our countrymen; and (2) simplify the current tax structure and bring it up to speed with inflation and public health costs.

We hope that our good senators will keep these in mind as they deliberate on the sin tax bill.

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