Ex-finance chiefs support sin tax reforms

MANILA, Philippines – A group of former Department of Finance officials and economists expressed their support on the current moves in Congress to adjust the current sin tax structure as part of the government’s revenue enhancement measures.

In a position paper released on Tuesday, February 28. the Foundation for Economic Freedom (FEF) said House Bill 5727 authored by Cavite Rep. Joseph Emilio Abaya is necessary to plug the country’s budget gap and address health-related expenses.

The measure, currently pending at the House Ways and Means Committee, calls for the adoption of a unitary tax system for tobacco and liquor and indexation of taxes to inflation.

“Given our weak macroeconomic fundamentals (unsustainable budget deficits and slugging gross domestic product growth rates), there is a need to strengthen our fiscal foundations via increasing revenue-generating mechanisms,” FEF said in its position paper.

FEF’s advisers include former Finance Secretary Roberto de Ocampo and former Prime Minister Cesar Virata, former Socioeconomic Planning Secretary Felipe Medalla, former Finance Secretary Ernest Leung, former Finance Undersecretary Romeo Bernardo and economist Raul Fabella.

When the officials were in government, they also pushed for rationalization of sin taxes but these efforts were downplayed.

Revenues, health

“The Sin Tax Reform Initiative is a necessary tool to plug our country’s deficit and finance much-needed economic and social infrastructure, with the added benefit of reducing tobacco related deaths and illnesses. This is one law that must be passed now without delay,” FEF said.

An increase in tobacco taxes would yield P30 billion and together with higher excise taxes on alcohol would yield P60 billion, it said, citing Finance department estimates.

“High economic and health related costs can be prevented with the passage of the sin tax law in 2003,” FEF said.

It cited that the government spent up to P300 billion for 4-smoking related diseases in 2003 alone,

Furthermore, FEF said the measure is necessary to plug the country’s budget gap, estimated to hit P286 billion in 2012.

Market leader disagrees

The current market leader, Philip Morris Fortune Tobacco Co. (PMFTC) warned that drastically increasing taxes on sin products could kill the local tobacco industry.

PMFTC is the merged entity of Philip Morris and Fortune Tobacco, which controls 94% of the market.

PMFTC chief, Chris Nelson, earlier said that higher tax rates could also create an environment that is conducive to smuggling.

PMFTC owns the following brands: Marlboro, Philip Morris, Fortune, Hope, Champion, Winston and More brands.

Recently, another multinational cigarette-maker, British American Tobacco, announced that it supports moves to reform the sin tax structure and will return to the Philippine market with its main brand, Lucky Strike. – Rappler.com