Sin tax: Higher price for lesser sin

After more than 10 years, the Sin Tax Law is now in effect. Dated Dec. 26, 2012, the Bureau of Internal Revenue (“BIR”) issued Revenue Regulations (“RR”) No. 17-2012 providing the implementing regulations on the revised excise tax rates on alcohol and tobacco products (“sin products”) pursuant to Republic Act (“RA”) No. 10351. Although the regulations were stated to take effect immediately, price adjustments on the sin products increased only at the start of 2013 – hence, maybe a not-so-happy new year to some.

The government, under the doctrine of “parens patriae,” has the duty among others to promote and improve quality of life of its constituents. It is argued that the Sin Tax Law will not only raise revenue, but will also “discourage” consumption of sin products, and hopefully avoid illnesses caused by the use of the tobacco and alcohol. Hence, it may be argued that the BIR is assisting the national government to demonstrate how the government is acting for the welfare of Filipinos. The question is whether the new measure is enough to effectively discourage people to consume sin products and lead to having lesser smoke or alcohol related illnesses. Or, will it remain as a mere revenue measure of the government. 

RR No. 17-2012 provided the schedule of revised rates for excise tax on sin products. As mandated in RA No. 10351, RR No. 17-2012 also provides an increase of excise tax in the succeeding years, including the four percent increase starting from a specified date and every year thereafter:  a. Distilled spirits/specific tax/per proof liter – Jan. 1, 2016;  b. Wines – Jan. 1 2014;  c. Fermented liquors – generally by Jan. 1, 2018, but if fermented liquors is brewed and sold by microbreweries or small establishments such as pubs and restaurants, the four percent increase starts next year - Jan. 1, 2014; d. Tobacco products and cigars – generally by Jan. 1, 2014, but in the case of cigarettes packed by hand – Jan. 1, 2018.          

Dated Dec. 28, 2012, Revenue Memorandum Circular (“RMC”) No. 90-2012 clarified and provided specific classification and identification of alcohol and tobacco products and their excise tax rates effective Jan. 1, 2013. The said classifications were based on BIR’s price survey in 2010. For alcohol and tobacco products that were introduced after the 2010 price survey but before the effectivity of RA No. 10351, the tax classification/rate is based on the suggested net retail price as declared in a latest sworn statement filed by the local manufacturers or importer, as the case maybe.

Later, RMC No. 03-2013, dated Jan. 9, 2013, further clarified certain provisions of RR No. 17-2012;  in particular, that the four percent increase in the specific tax rates applies to all kinds of tobacco products, specifically including chewing tobacco and cigarettes packed by machine. This clarification was necessary due to the inadvertently placed dividing lines in the cigarettes and cigars category of RR 17-2012; hence, the anticipatory RMC 03-2013 to avoid potential misinterpretation that chewing tobacco and cigarettes packed by machine are not among the sin products which will be subject to the four percent increase. The RMC also clarified that in line with the definition of distilled spirits under the 1997 Tax Code, all end-products such as alcohol, ethanol or other similar products or mixtures are separate and distinct distilled spirits apart from alcoholic products such as whisky, brandy, rum, etc. As such, the BIR clarified that all end-products shall be subjected to the imposition of a separate and different excise tax.

The government is targeting a collection of more than P30 billion in the implementation of the Sin Tax Law. Amidst the outcry of tobacco growers who might not be so enthusiastic in the implementation of the Sin Tax Law, or the constitutionality of the law being questioned, this is one issuance that the BIR may have gained the support of the majority of its taxpayers – effectively higher prices for lesser sin.

Mary Grace Z. Olivarez is a supervisor from the tax group of Manabat Sanagustin & Co., the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email [email protected] or [email protected].