Higher tobacco tax to have ‘very minimal’ impact on inflation — DOF
MANILA, Philippines — Higher tobacco excise levies won’t have a significant impact on inflation, the Department of Finance said Tuesday, as the Duterte government seeks to further hike cigarette tax rates in a bid to discourage smoking and raise more healthcare funds.
At a Senate hearing, Finance Undersecretary Karl Kendrick Chua told lawmakers that new "sin" tax rates on tobacco products would have “very minimal” effect on annual consumer-price growth.
“Assuming the price of a pack is P100 and we are increasing the excise [tax] by additional 25 [percent] because from P35 today to P60 that is 25 percent increase in the cigarette price and since the share of cigarette in the consumption basket for inflation is only 0.9 percent, so that will be an additional 0.2 percent [annually] on top of whatever is in inflation,” Chua explained.
“If the inflation this year is 3 percent because the central bank says its [target is] 2-4 percent, then it will probably be 3.2 percent because of sin tax. So very minimal po,” he added.
President Rodrigo Duterte earlier agreed to certify as urgent the proposal of the DOF and Department of Health to jack up sin taxes.
Finance Secretary Carlos Dominguez III had said increasing the current tobacco excise tax rates to levels that would “effectively curb smoking” would also help supplement funds for the Universal Health Care program, especially for the treatment of smoking-related diseases.
Last year, the House of Representatives passed on third and final reading its version of the sin tax reform bill, which seeks to raise the current tax of P35 per pack of cigarettes to P37.50 beginning July 2019. Thereafter, the rate will be raised to 4 percent annually effective 2023.
The DOF proposal had supported the position of Rep. Angelina Tan (Quezon) to raise the tobacco excise tax to P60 per pack in 2019 and increase it by 9 percent annually thereafter.
In 2018, inflation averaged 5.2 percent, well above the government’s 2-4 percent target range and the highest level since 8.2 percent recorded in 2008.
People have partly blamed soaring prices on the Duterte administration’s Tax Reform for Acceleration and Inclusion law, which lowers personal income taxes while raising excise levies on fuel and “sin” products, among others.
Last year, the DOF said it was eyeing the removal of tobacco products from the basket of commodities used to calculate inflation, saying cigarettes should not be considered as consumer goods but as “vices”
READ: New consumer price index to possibly exclude tobacco
“What we found out was that inflation effect from tobacco last year was 0.3 percent,” Chua told senators.
“So if the full-year inflation, as we know, is 5.2 percent, 0.3 percent of that is tobacco but only 0.1 percent is TRAIN, the other 0.2 percent is basically the better compliance following Mighty,” he added, referring to the discovery of a Bulacan-based cigarette manufacturer’s wide-scale use of counterfeit tax stamps. — Ian Nicolas Cigaral
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