From ‘sin’ tax to ‘sweet’ tax

Lawmakers of the 16th Congress acted with dispatch in approving into law what could be the most popular bill they ever passed since they first convened in June 2013. For the many hardworking employees to benefit from it once this takes effect, Congress lost no time to pass upon the proposed law to raise the cap from the current P30,000 to P82,000 on tax exemptions of Christmas bonus, or 13th month pay.

Not wanting to be the spoilers of the Yule season, congressmen even cut short the legislative process by adopting the Senate version of the bill. Senators Ralph Recto and Juan Edgardo Angara are co-authors of this soon-to-be-law.

Unfortunately, however, this would take effect not now, but for next year’s Christmas bonuses.

Both the Senate and the House of Representatives ratified the proposed law two weeks ago. The enrolled bill is now pending for approval and signature into law by President Benigno “Noy” Aquino III.

This pulled through despite the last-minute strong lobby to stall approval of the bill in Congress. Senate president Franklin Drilon revealed such request from the Department of Finance (DOF), specifically from the Bureau of Internal Revenue (BIR) headed by commissioner Kim Henares. At the outset, the BIR cautioned against the estimated P26.8 billion in potential revenue loss for the government from this tax cut measure.

Congress, however, gave weight to the studies of the Philippine Institute for Development Studies which pegged lower estimates of tax loss to reach only P2.6 billion. A separate study by the University of the Philippines’ School of Economics put the possible revenue loss at P5.6 billion.

From economic calculations, Recto cited, one peso today is worth about 36 centavos. Adjusted to inflation, the present ceiling of P30,000 was adjusted to P82,000 as corrected in the Recto bill which both chambers of Congress eventually adopted.

The enrolled bill is perhaps now pending with the DOF/BIR for final review. They could recommend to President Aquino either its approval into law or veto it. So who’s the Christmas scrooge now?

The BIR told Congress it would not reach its revenue target for 2014 if the bill would cover bonuses for this year. Recto admitted he agreed for the bill to be implemented in 2015 rather than lose the bill to a presidential veto.

However, it behooves the BIR to explain to Congress its reported poor revenue collections from the so-called “sin” tax after the lawmakers approved into law Republic Act 10351, or “An Act Restructuring the Excise Tax on Alcohol and Tobacco Products.” Speaker Feliciano Belmonte Jr. demanded explanation from the BIR on the alleged failure of the government to fund its universal health care program out of the proceeds from RA 10351.

Enacted in 2012, the Sin Tax Law mandates that 80 percent of the remaining balance of the incremental revenues from the law will be earmarked for the enrollment of the second poorest 20 percent of the population to the state-run Philippine Health Insurance Corp. (PhilHealth). When this was still being deliberated in Congress, the DOF/BIR told them the passage into law would create P34 billion in additional revenues for the government.

In particular, the Speaker noted with concern reports reaching Congress that much of the uncollected revenues were largely due to loopholes of RA 10351 allegedly being taken advantage by tobacco firm Mighty Corp. “All of a sudden a small tobacco firm has become a huge company?” the Speaker said reacting to an advertising campaign calling the BIR’s attention to the possible tax liabilities of Mighty Corp.

The usually articulate and sharp-shooting BIR chief, however, has been unusually silent despite the escalating ad war among the tobacco industry players. If the mighty BIR won’t act on it, Congress will.

Speaker Belmonte tasked the House members in the joint congressional oversight committee on the Sin Tax Law to immediately look into these reports. “I’d like to find out what happened to sin tax collections. Because it’s really the affair of the BIR but we’re not hearing from it. But Congress, which has initiated the sin taxes, wants to find out,” Belmonte told House reporters last Tuesday.

Under the country’s Constitution, all tax measures emanate from the House of Representatives.

Ang Nars party-list Rep. Leah Paquiz earlier announced the House will summon key officials of the Department of Health (DOH), Finance Department, and the BIR to update Congress on their respective efforts to run after tobacco firms evading taxes and health programs funded out of “sin” taxes.

She said the House committees on health, and ways and means, will conduct the joint oversight inquiry into the implementation of the law.

This after Cagayan de Oro Rep. Rufus Rodriguez filed House Resolution 1591 seeking an inquiry into the government’s failure to allocate funds for the universal health care program from proceeds of the Sin Tax Law.

The BIR chief was reportedly livid on the flak she has been getting from Congress on this tax war among tobacco industry players. Thus, House leaders believe a review of RA 10351 would enable Congress to help the BIR collect more if they would be able to plug tax-shaving schemes allegedly being carried out by unscrupulous tobacco companies skirting the law.

In obvious attempts to appease the BIR chief, pro-administration congressmen meanwhile started the legislative process to grind on the proposed bill to impose additional tax on soft drinks and other sugar-sweetened drinks. Authored by Nueva Ecija Rep. Estrellita Suansing, House Bill 3365 seeks to impose a 10 percent ad valorem tax on carbonated and non-carbonated drinks purportedly to wean consumers away from sugar-rich drinks that could lead to diabetes, obesity and other health problems.

But the Beverage Industry Association of the Philippines (BIAP), that included global giants Coca-Cola and Pepsi, strongly objected to the proposed new tax measure directly affecting their products. In a position paper submitted to Congress last week, BIAP pointed against discriminating on soft drinks and other carbonated drinks.

While the BIR is taxing the patience of Congress on its ability to collect from the “sin” tax law, here comes the “sweet” tax being invoked also in the name of health of taxpayers. But with the next May 2016 elections just around the corner, the passage into law of this new tax-raising bill would likely find rough sailing in Congress.