BAT, Japan Tobacco give opposing views on sin tax measure

Manila, Philippines -  Two major global players in the tobacco industry gave opposing views on the Aquino administration’s plan to reform the current four-tier excise tax system under the proposed Sin Tax Reform bills now pending at the Senate.

In a position paper submitted to the Senate committee on ways and means chaired by Sen. Ralph Recto, British American Tobacco (BAT) said amending the current system would break the monopoly in the tobacco industry in the country.

BAT general manager James Laferty said reforming the law would benefit the Philippine economy and be strongly supported by the international community including the International Monetary Fund (IMF), the ASEAN Free Trade Area (ASEAN-AFTA), and the World Trade Organization (WTO) members.

“Reforming the current law would not only garner support from the IMF, but would also send a strong signal to investors that follow IMF recommendations, to make Philippines an attractive destination for investment,” Laferty added.

He added that reforming the current law would bring the Philippines into conformity with national treatment obligations under the General Agreement on Tariffs and Trade (GATT), by ensuring domestic and directly competitive imported products are similarly taxed.  

“This reform would also mitigate the risk of a potential challenge by key trading partners, as occurred with alcohol products in late 2011, when the Philippines’ alcohol tax policy was successfully challenged by the United States and the European Union,” Laferty said.

The current system inequitably classifies brands present in the market as of October 1, 1996 based on their 1996 net sales prices as a result of a “classification freeze” wherein similar tobacco products are taxed at vastly different and higher rates, creating serious market distortions. 

BAT first entered the Philippine market in 1889, two years after the enactment of Republic Act 8340, which put in place the prevailing excise tax system.  It manufactures Lucky Strike and Pall Mall cigarettes. 

In supporting the pending excise tax reform bills, Laferty pointed out current flaws in the present system which the BAT claimed to have resulted in tax loses since it favored some tobacco firms that were able retain their classification even if their net retail prices have gone beyond classification limits.

BAT is also supporting the version of the House of Representatives that would simplify the tax administration by classifying cigarette brans into either high priced or low-priced.  HB 5727 would also increase revenue collection by setting rates for high price (P28.30 and P30 per pack in Years 1 and 2, respectively) and Low-Price categories (P12 and P22 per pack on Years 1 and 2, respectively).

On the other hand, Japan Tobacco International Philippines general manager Manos Koukourakis warned that the passage of the proposed excise tax measure would impose the biggest tax hike of 708 percent on tobacco products spawning cigarette smuggling.

Koukourakis appealed to the senators, who are now deliberating on at least five proposed measures amending the excise tax rates on alcohol and cigarette products, to approve an excise tax law that is equitable and reasonable, one that will allow the tobacco industry to survive.

“Countries like Malaysia, Ireland, countries in Europe, Turkey, Iran, France, Germany, Canada, Austria and other countries have enforcement practices in place but they can not control smuggling because smuggling will always find a way to benefit trade as long as we leave the door open,” Koukorakis said.

Two major global players in the tobacco industry gave opposing views on the Aquino administration’s plan to reform the current four-tier excise tax system under the proposed Sin Tax Reform bills now pending at the Senate.