Debate continues

A bill has been filed in Congress that seeks to retain the current two-tiered taxation scheme for tobacco, albeit at higher rates.

House Bill 4144, authored by Rep. Eugene Michael de Vera, proposes two new increased tax tiers, one at P32 per pack and the other at P36 per pack, plus an annual increase of five percent on these rates.

According to De Vera, the proposed measure seeks to protect the welfare of tobacco farmers by maintaining the current excise tax system on the cigarette packed by machine to two tiers instead of shifting to unitary excise tax rate in 2017.

The current sin tax on tobacco sees a unitary tax rate of P30 per pack in 2017.

Tobacco excise taxes contributed around P100 billion last year, compared to only P32 billion in 2012, and now account for more than two-thirds of sin tax collections.

Before the passage of the Sin Tax Reform Act which took effect in 2013, the country’s excise tax on cigarettes had four tiers. The said law introduced higher excise tax rates for alcohol and tobacco products.

The proposed measure has been met by opposing views from manufacturers and importers of higher priced and lower priced cigarettes.

Makers of affordable cigarette brands and their tobacco growers and suppliers are supporting De Vera’s bill, saying the two-tiered scheme is consistent with a progressive system of taxation whereby higher priced goods are taxed higher and lower priced items taxed at lower rates.

Article VI, Section 28(1) of the 1987 Constitution provides that the rule of taxation shall be uniform and equitable and that Congress shall evolve a progressive system of taxation.

A progressive tax is a tax in which the tax rate increases as the taxable amout increases. A flat tax system or a proportional tax system meanwhile assesses the same tax rate to taxpayers regardless of income or wealth. Under  regressive tax system, individuals and entities with low incomes pay a higher amount of that income in taxes compared to high-income earners.

They have argued that a unitary tax rate on cigarettes will have a bigger impact on low priced products which are used by the lower income segments of society since the tax will be a much bigger percentage of the product.

They also emphasized that a unitary tax will unreasonably raise prices of the more affordable cigarette brands in a market that has high price elasticity, meaning changes in price have a relatively large effect on demand for said goods. If this happens, they warned that many tobacco farmers and their dependents will be displaced.

On the other hand, they stressed that the market for higher priced cigarettes is inelastic which means that changes in price have a relatively small effect on the quantity of the good demanded. This means that buyers of higher price cigarettes will not stop smoking or will not even reduce their purchases just because prices went up.

Meanwhile, market leader Philip Morris Fortune Tobacco Corp. (PMFTC) and importers of higher priced cigarette brands like British American Tobacco and Japan Tobacco Inc. are opposed to the bill, even as they pointed out that they are joined by health advocates who are saying that eliminating the distinction between high price and low price cigarettes via single tax rate will make cigarette prices even more prohibitive especially to the youth.

There are also oppositors to the proposed bill who are saying that the bill’s approval is being rushed by the House committee on ways and means chaired by Rep. Dakila Cua and that a report will be ready for the member’s signature after Monday’s hearing.

They added that the bill was not even included in the priority tax measures submitted by the finance department to Congress as part of the so-called package 1 of the tax reform program of the Duterte administration.

The Philippine Tobacco Growers Association has also been quoted in media as saying that farmers are still struggling to regain lost volume from the huge increase in 2013 and another 20 percent increase would kill the industry.

But then, supporters of the bill are saying that the increase in rates could be tempered but the two-tiered taxation system on cigarettes should remain.

They warned that as experience in other country’s would show, making low priced cigarettes unaffordable would only encourage buyers of these cigarettes to patronize untaxed smuggled cigarettes.

Let’s see how the arguments would evolve for and against the bill.

Unfounded fears

Just recently, the United States Embassy in Manila issued a travel warning, alerting their citizens about an alleged plan of terrorist groups to conduct kidnapping operations in the southern portion of Cebu, in particular the municipalities of Dalaguete, Santander, and Sumilon Island in Oslob.

But the fear seems to be unfounded and tourism activities in these areas remain normal. It has been reported that tourist traffic remains high especially during long holiday weekends and that there had been minimal booking cancellations received by affected resorts as a result of the warning.

During a meeting of the Cebu Provincial Peace and Order Council, the top brass of the Police Regional Office (PRO) 7 and the AFP’s Central Command assured the public that the south of Cebu remains safe and that security forces are on top of the situation.

We have been told that following the advisory, the Philippine National Police has added personnel in areas frequented by foreigners and that the PNP is working with its counterparts in the AFP to intensify security measures. The Philippine Navy and Air Force have also deployed patrol boats and choppers for extra precaution.

PRO7 deputy director for operations Senior Supt. Rey Lyndon Lawas said reports on the presence of Abu Sayyaf terrorists in the area are not true while Gov. Hilario Davide III emphasized that the place is safe for tourists.

One of the most popular resorts in the area, Bluewater Sumilon, has stressed that the island is safe, that their own security personnel are always ready, and that the Coast Guard has maintained a detachment in Sumilon Island as early as August. The PNP is considering a permanent presence in the area.

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