Finance to Congress: Abolish rule favoring Philip Morris

MANILA, Philippines – The Department of Finance is not letting up on criticizing the current sin tax law and its provisions that favor the joint venture of cigarette makers Philip Morris and Lucio Tan-led Fortune Tobacco.

On Thursday, March 15, Finance Secretary Cesar Purisima blasted the provision in the current sin tax law on the price classification freeze, stressing that this only favors cigarette brands controlled by Philip Morris Fortune Tobacco Corp.

“These provisions serve nothing else but to protect the market shares of existing companies at the expense of public health,” Purisima said.

Purisima added that dismantling the annexes and price classification freeze of certain brands are at the core of the excise tax reform proposals that the government is pushing.

Malacanang-backed reforms

The Finance department is supporting House Bill 5727, authored by Cavite Rep. Joseph Emilio A. Abaya that seeks to reform the current excise tax regimen of alcohol and cigarettes.

The HB 5727, which Malacanang and former finance and health chiefs are supporting, is currently pending at the House Ways and Means Committee.

According to Bureau of Internal Revenue Commissioner Kim Henares, President Aquino himself asked his Cabinet members to ensure that HB 5727 is passed, including the no-price-freeze position.

Check video from previous press briefing. (Click here for more.)

Current vs proposed

This bill aims to abolish the annexes and price classification freeze of certain brands.

Under the prevailing sin tax system, 1996 brands, which cover the brands of PMFTC, are permanently classified regardless of an increase in net retail prices but post-1996 brands are classified based on current retail prices.

This happened because of Republic Act 8240 or the excise tax reform law, which was enacted in November 1996.

The law froze taxes due from tobacco and alcohol products based on net retail prices on October 1, 1996.

As a result, brands sold as low-priced cigarettes in 1996 continue to be taxed as low-priced whether or not they have been repackaged already as premium cigarettes.

New brands that entered the market after the law was passed, however, are taxed according to their current net retail price.

The Finance department cited the results of a survey by the Bureau of Internal Revenue (BIR) conducted in late 2010 which showed this discrepancy.

Another multinational player, British American Tobacco, which has been edged out of the market since its brands were pegged on the higher tax classification scale, is supporting HB 5727.

Philip Morris had said the sin tax reforms will result in increase in smuggled cigarettes, which in turn will result in loss of employment of tobacco farmers in the Philippines. – Rappler.com