Sin tax reforms take one step forward

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In a bold move to shore up government revenues, a long-awaited version of the sin tax reform bill was filed in Congress.

MANILA, Philippines – In a bold move to shore up government revenues, a long-awaited version of the sin tax reform bill was filed in Congress.

Cavite Rep.  Joseph Emilio Abaya, chair of appropriations committee, authored House Bill 5727, which reflects the Aquino administration’s version of the sin tax reform.

HB 5727, which has been referred to the House Committee on Ways and Means led by Davao Rep. Isidro Ungab, seeks to simplify the current multi-rate excise tax structure on tobacco and alcohol products by implementing a unitary rate.

The bill also provides for the automatic adjustment of taxable amount on price increases or inflation.  

Currently, the sin tax structure imposes different tax rates on alcohol and tobacco products that favor local brands over foreign ones, and has shifted demand to the least taxed brands that eroded revenue collections.

The current structure also resulted in a duopoly in the market, until the key players, Lucio Tan-led Fortune Tobacco and multinational firm Philip Morris entered into a joint venture agreement that allows them to corner almost the entire Philippine market.   

These long advocated sin tax reforms did not prosper during the term of Batangas Rep. Hermilando Mandanas as chair of the Ways and Means Committee. Mandanas was stripped off his committee chairmanship last December.

Previously, Finance Secretary Cesar Purisima, the de facto head of Aquino Cabinet’s economic team, and Budget Secretary Florencio Abad said they expect economic bills, including sin taxes, the fiscal incentives rationalization bill, to move forward with Ungab as new chair of the crucial committee.

The Aquino government has made a campaign promise of no new taxes, but had considered the sin tax as a reform agenda, as well as source of new revenues to keep the government’s coffers buoyant amid plans to go all-out on infrastructure spending.  

“This bill is the author’s humble contribution to this call for cooperation,” Abaya said in a press statement on Thursday, February 2, referring to Aquino’s previous statements about how critical it is to move the development agenda forward. Abaya is a stalwart of the Liberal Party of Aquino

He also said the proposed reforms will overhaul the current sin tax structure to make it “simple, fair and responsive to the objectives of the government.”

Transition period

From Abaya’s statement, the proposed reforms have the following key points: It will yield additional P60 billion revenues for the government, which will spare the government from borrowing more, and that the tax collections will be allocated to fund health programs so more funds can be allocated for infrastructure investment.

He is essentially echoing what Purisima, his successor, former Finance Secretary Margarito Teves, and various sin tax reform advocates have been pushing all along.

“The bill provides for the continued sharing by tobacco farmers from incremental revenues but for purposes different from the existing intentions. More importantly, however, the
bill proposes to direct incremental revenues towards augmenting the funds for the universal health care program of the government,” Abaya said.

The bill proposes a 3-year transition period to unify the tax rates on cigarettes and distilled spirits.

“The bill approaches the reform in a more pragmatic manner by proposing to unify the excise tax rates in phases in aspects where a one-time unification proves too abrupt,” he said.

Distilled spirits

Alcohol content in distilled spirits will determine the excise taxes and schedule of adjustments.

For spirits with 45% alcohol by volume and less:

  • P42 per proof liter by January 1, 2012
  • P150 per proof liter by January 1, 2014.

For spirits with more than 45% alcohol by volume:

  • P317.45 per proof liter by January 1, 2012;
  • P233.73 per proof liter by January 1, 2013,  
  • P150.00 per proof liter by January 1, 2014,

On the fourth year onward, the excise tax rates will be adjusted based on inflation rates for alcoholic drinks, as published by the National Statistics Office.

Wines, champagnes, tuba

The tax structure for fermented liquor, however, will be immediately unified on the first year of the reform, or on January 1, 2012.  
Volume capacity per liter in fermented liquor will determine the excise tax rates and schedule of adjustments

For sparkling wines and champagnes regardless of proof, P300.00; for still wines regardless of proof, P50.00

For fortified wines containing more than 25% of alcohol by volume shall be taxed as distilled spirits. Fortified wines shall mean natural wines to which distilled spirits are added to increase their alcohol strength.

For beer, lager beer, ale, porter and other fermented liquors–tuba, basi, tapuy and similar fermented liquors, P25.00 per liter effective January 1, 2012.  

On the 4th year onward, tax rates will be adjusted based on inflation. –

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