With the House and the Senate coming out with different versions of the proposed “sin-tax” reforms for cigarettes, the battleground shifts to the bicameral committee where hopefully the best features of each version will be harmonized and aligned for the good of the greater majority of Filipinos.
Those pushing for more reforms in terms of higher revenues for health and better business environment through a more level playing field will have to contend again with the strong lobby of those who want a much lower tax increase and the status quo where the existing monopoly position of Philip Morris-Fortune Tobacco (PMFTC) is maintained. The prime objective of the group is to continue market monopoly (over 90 percent of the cigarette market) and prevent other companies from entering the lucrative cigarette business.
Where House and Senate differ
HB 5727 clearly calls for a two-tier classification system of cigarette brands, a compromise position since more radical lawmakers from the Lower House had originally called for an immediate single or unitary taxation table.
SB 3299, as approved by our Senators, maintains the three-tiered system until 2014, thereby giving tobacco companies a reprieve of two more years. However, there are certain provisions inserted that create doubt as to whether the system is in reality three-tiered going to two and finally to one.
This is one issue that will have to be clarified as it is not aligned with the clear intention of the House version.
Even lower expected tax revenues
Not content with just bringing back the three-tier system, the Senate version also slapped a lower amount of taxes on cigarettes.
In HB 5727, taxation rates for cigarettes in the high tier level would be assessed a levy of P28.30 per pack next year, P30 in 2014, and by eight percent every two years thereafter.
In the Senate version, though, taxation on the third tier (highest tier) cigarettes has been set at P20 per pack next year, P21 only in 2014, P22 in 2015, P24 in 2016, P26 in 2017, and by an additional four percent every year hence.
The approved tax rates in the Senate version was approved after a caucus where the group that turned down the proposed rates in the Drilon version of the bill which provided for P28.30 per pack as the tax for the highest tier next year, increasing to P30 per pack in 2014, and eventually a unitary rate of P32 in 2016.
Insatiable greed
Apparently, as pressure mounted and early passage of the bill became uncertain, the senators finally agreed to reduce the rate of the combined premium and high price tier of cigarettes from the Drilon version of P28.30 to a much lower rate of P20 per pack.
Just on this change alone, a whopping amount of over P1.6 billion worth of taxes will be saved by the tobacco monopoly, a bonanza on profits but a regrettable loss for public health and for tobacco farmers. Again, reconciling these rates with the House version and with the desire of the monopoly group to lower them a bit more would make an interesting bicameral committee action.
Chris Nelson, president of PMFTC, the publicly known head of the tobacco monopoly which controls over 90 percent of the cigarette market was quoted as saying, “I think the increase is still very high. We are hoping rates can still be reduced.” Wow, insatiable indeed.
No level playing field
The provisions of both the approved House version and the Drilon version clearly achieved the level playing field that P-Noy’s administration was calling for.
However, this level playing field is not clear in the approved Senate version which, for instance, effectively calls for the use of the Net Retail Price (NPR) definition as originally provided for by the defective RA 9334 in classifying new brands.
This means that any new tobacco firm that intends to come in will have to contend with higher taxes on their products and therefore, will not be able to compete in the categories controlled by the PMFTC monopoly.
The House version promotes a better sense of fair trade since it uses net retail prices for two tiers, i.e., less than P11.50 for low price brands and P11.50 or more for high price brands, and as determined by the BIR from its price survey.
In SB 3299, there is almost no change in classification of existing brands. Instead of using NRP that the Bureau of Internal Revenue had gathered in its latest price survey, the basis will continue to be the amount of taxes paid by each brand this year.
This effectively negates the House version calling for two tiers, where those with an NRP of less than P11.50 per pack are classified in the low tier level, while those with NRP of P11.50 or more per pack will be classed in the higher tier level.
Obviously, the monopoly group will try to influence the bicameral to adopt the Senate version on this issue as it will effectively maintain the status quo where new entries are prevented from competing.
Battle for reform rages on
As our lawmakers head for the bicameral discussions on this sin tax bill, can we expect even more downgrading?
It is quite clear that the strong pressure of the lobby to “soften” and make “less drastic” reforms in the excise tax structure for cigarettes, that started in the House and prevailed in the Senate, will continue to rear its ugly head in the bicameral deliberations.
Our hope is that the call for reforms will be answered by legislators not afraid of special interest groups and motivated by what is good for the greater number.
2012 National Collegiate Championship
After more than a month of qualifying games, regional games and “step-ladder” knock-out games, the championship series of Champions League (PCCL) 2012 National Collegiate Championship starts today with five-peat UAAP champion, Ateneo Blue Eagles, battling again with the eager-to-get-even UAAP runner-up, UST Growling Tigers, for the much coveted title of one national collegiate champion.
Watch this exciting best-of-three series at FilOil Flying V Arena, San Juan or at ABS-CBN Channel Studio 23 which will televise live all games in the series.
Visit www.CollegiateChampionsLeague.net for more details.
Facebook and Twitter
We are actively using two social networking websites to reach out more often and even interact with and engage our readers, friends and colleagues in the various areas of interest that I tackle in my column. Please like us at www.facebook.com and follow us at www.twitter.com/ReyGamboa.
Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salved Village, 1227 Makati City. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.