Aquino on sin tax bill: Urgent!

MANILA, Philippines – He may be a smoker but he wants to “discourage” others from taking on the vice by fast-tracking sin tax reforms.

On Wednesday, May 16, President Aquino announced he has certified as urgent the bill seeking to raise the excise taxes on cigarette and alcohol products that was recently approved by the House Committee on Ways and Means.

“Raising the taxes will generate P33 billion that will be divided among tobacco-growing areas. This will go to health-related activities and livelihood support programs for tobacco farmers,” he told Bombo radio network in Malacanang.

Aquino said the bill is important mainly on two fronts: it will discourage smoking especially among the poor, thus lowering the economy’s health care costs, and allow tobacco farmers to earn more from their product by bringing in more players in the industry.

Authored by Cavite Rep. Joseph Emilio Abaya, House Bill 5727 simplifies the country’s excise tax system, which has kept the tax rates for local brands low, and indexes the rates against annual inflation.

Under the bill, the tax system for cigarettes will be reduced to two- from 4-tier, while the tiers for distilled spirits and fermented liquor will be 3.

Indexing the taxes to inflation, meanwhile, ensures that taxes are adjusted to reflect yearly fluctuations in the prices of goods and services.

The changes in the tax structure will increase the taxes imposed on the products, which in turn, will increase their prices in the market. Higher prices are expected to discourage the public, particularly the poor, from consuming them.

The bill was a “substitute” for the original proposal that sought to remove the multiple tiers of the existing structure and impose a unitary tax rate on sin products. The first proposed measure faced stiff opposition from tobacco and alcohol manufacturers who cited its negative effects on local players and workers.

Higher tobacco prices

Aquino said the new bill will allow new players to enter the tobacco industry and raise the price of tobacco sold by farmers.

“The current tax structure protects the monopoly of the only remaining tobacco player in the country,” he said, referring to Philip Morris Fortune Tobacco Corp., the product of the merger of the local operations of tycoon Lucio Tan’s Fortune Tobacco and US-based giant Philip Morris.

“With no other players in the market, the farmers only have that one company to sell to. How can you sell at a higher price if only one company buys your product? It becomes a take-it-or-leave-it situation.

“If you have other players, farmers can dictate their price,” the President added.

Aquino also said that if passed, the new measure will generate additional revenues that will help fund health care for all.

“I smoke but I want to discourage others from doing the same because health expenses associated with the ills of smoking and drinking are huge,” he said.

The government expects to collect P33 billion from the new sin tax bill, down by nearly half from the earlier target of over P60 billion under a unitary tax system.

Sin tax collections in 2011 fell by roughly 20% to P25.4 billion from the year before, the biggest drop so far. The Finance Department said the government lost nearly P20 billion in revenues from 2006 to 2010 due to the current tax system. – Rappler.com