Stable tobacco tax seen to eliminate illicit trade

Louisse Maureen Simeon - The Philippine Star

MANILA, Philippines — A stable and predictable taxation on the tobacco industry is expected to provide consistent revenue collections for the government and stamp out the illicit trade of cigarettes, an international think tank said.

In its latest economic impact report on the Philippines, Oxford Business Group (OBG) said further tobacco rate hikes may lower affordability for consumers and provide a boost to illicit trade.

Tobacco taxes have been on an upswing following the implementation of the Sin Tax Reform Law and the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

While the Marcos administration has yet to float additional taxes on consumers, the Department of Finance did not dismiss the fact that the government can improve on tax efforts through additional taxes on certain sectors.

These include the tax rate on vices as the DOF notes that there’s still room to increase some of them.

“More stable and predictable taxation could help the tobacco industry prepare for growth and diversification— particularly if illicit trade can be limited,” OBG said.

“The industry could offer consistent collections, employment opportunities, and GDP (gross domestic product) contributions for the Filipino population over the coming years.”

It maintained that illegal trade grows when legal tobacco products become less affordable.

Based on the fiscal consolidation plan proposed by the economic team of the Duterte administration, the new government is urged to introduce reforms on health taxes as part of the second tranche of the plan.

This includes levying alcopops, cigarettes, e-cigarettes, non-nutritious foods and sugary drinks.

Excise taxes on cigarettes and e-cigarettes will be jacked up, while a unitary rate of P12 per liter on sugar-sweetened beverages will be placed, all in an effort to generate P91.4 billion in sin revenues every year.

But the OBG argued that further hikes pose a risk of falling sales, revenue collection and employment – as well as the potential for a spike in illicit supply.

“Frequent upward revision of tobacco tax rates could cause business unpredictability, lower affordability and create sustainability issues for manufacturers,” OBG said.

“The tobacco industry accepts the current rate of excise tax increases as viable and is committed to contributing a large share of sin taxes for health care and welfare,” it said.

The TRAIN Law implemented a unitary rate of P45 for 2020, followed by P5 annual increases for the three subsequent years.

With a five percent annual rise expected indefinitely from 2024 onwards, OBG said maintaining robust tobacco tax collections will be key to sustain health care appropriations.

In 2020, revenues collected from tobacco comprised 58 percent of all sin taxes collections. These are being utilized to finance the national health budget.

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