DOF urges Congress to stick to Sin Tax Law

MANILA, Philippines - The Department of Finance yesterday urged Congress to allow the full implementation of the Sin Tax Reform Act after an unexpected proposal to reverse the landmark law breezed through committee readings.

“We consider the Sin Tax Law or Republic Act 10351 to be a very good law. Our position is to fully implement the law and let it run its course,” Finance Secretary Carlos Dominguez said in a statement.

Dominguez issued the statement after the House ways and means committee approved House Bill 4144 on second reading. The first committee hearing on the bill was held on Nov. 28. It was approved without amendment during the second hearing on Dec. 5 and submitted to the Committee on Rules on the same day.

House Bill 4144 intends to keep the current two-tier tax system on cigarette products, which under RA 10351 is set to be unitary beginning Jan. 1, 2017.  

The lower tax is proposed to be set at P32 per pack for cigarettes that have a net retail price of P11.50 while cigarette packs priced above P11.50 will be taxed P36.

In contrast, the Sin Tax Reform law mandates a single tax rate of P30 for all cigarette products, regardless of brand, by next year.

The current proposal even runs counter to the Department of Finance’s plan to raise excise tax on tobacco and alcohol anew by 2018 under its comprehensive tax reform program.

Non-government organizations, which supported the 2012 measure, opposed the bill, saying it would reverse gains in cutting smoking prevalence and raising more revenues for health purposes.

“We are deeply disappointed with the railroading of the passage of House Bill 4144,” think tank Action for Economic Reforms said in a statement.

“The blitzkrieg passage of this flawed bill shows that Congress will not pass legislation leading to solid reforms. It shows that Congress accommodates vested interests,” it added.

The Sin Tax Law itself took months of deliberations before getting passed in Congress. It has been hailed as “the single most important health policy legislation of the past decade” in the Philippines.

The government estimates around eight million Filipinos stopped smoking since the passage of the law.

This was after more than a quarter of cigarette supply was removed from the market as costs had gone up. Still, state revenues from tobacco products alone more than tripled from 2012 to 2015.

The World Bank is pushing for the implementation of a unitary tax rate on all tobacco products, regardless of price and brands, to curb tobacco consumption and provide additional revenues for the government.

In its report titled Sin Tax Reform in the Philippines, the World Bank said a single excise tax regime on all tobacco products would help curb tax evasion and corruption as it  “addresses administrative difficulties of classifying cigarettes by declared value and focuses more on observed volumes.”

“For tobacco, setting minimum and unitary specific tax rates was attractive to decision makers. Multiple tiers, with lower taxes on cheaper brands, create an incentive for producers to downshift their products to lower-taxed tiers,” the World Bank said.

Under a multi-tier tax system, consumers especially from the lower bracket would merely shift to lower priced-brands, thereby negating the regulatory goals of the Sin Tax Reform law

“Because cigarettes are equally harmful regardless of price the unitary rate is an important feature for health purposes, especially given the large number of smokers in lower-income quintiles and smoking cheaper brands,” the World Bank said.

The Action for Economic Reforms, for its part, assailed the railroading of the passage of House Bill 4144 at the House of Representatives.

Various groups comprising the Primary Care Coalition, Action on Smoking and Health (ASH), Framework Convention on Tobacco Control Alliance Philippines (FCAP), New Vois Association of the Philippines, Health Justice Philippines and Womanhealth Philippines have likewise strongly opposed the proposed measure authored by ABS Partylist Rep. Eugene Michael De Vera.

 “We are alarmed that Congress leaders are bent on getting this passed,” said ASH executive director Maricar Limpin.

 AER president Cristina Morales-Alikpala warned that a two-tier tax system would make it easy for tobacco manufacturers to produce cheap brands to avoid higher taxes.

“A higher unitary tax rate will protect and save more lives, and significantly reduce downshifting to cheaper brands. HB 4144 will be bad for both health and revenues,” Alikpala said.

 Mighty Corp., a Chinese-Filipino owned cigarette company that sells low-priced brands, has been pushing for the measure. Its spokesperson,  former National Economic Development Authority director general Romulo Neri argued during the hearing that the two-tier rates would address an “inequitable situation” as cigarettes for the rich would be taxed higher.

Like the DOF, industry giant Philip Morris-Fortune Tobacco has posed its objection to House Bill 4144.

 “We do not support further changes in the law at this time, and reverting to a multi-tier system that is widely discredited,” PMFTC said in a letter to the House committee on Ways and Means.

Bulacan-based Mighty Corp. has grown phenomenally by taking advantage of the present two-tier scheme. – With Zinnia Dela Pena, Iris Gonzales, Sheila Crisostomo, Jess Diaz