Tobacco Companies and Excise Taxes

The tobacco industry would shoulder the bulk of the additional revenues generated from “sin” products should the current version of the excise-tax reform bill be implemented, data from the Department of Finance (DOF) showed. House Bill 5727, or “An Act Restructuring the Excise Tax on Alcohol and Tobacco Products,” is expected to generate an additional P31.35 billion in new revenues for the first year of implementation or in 2013, the data showed. Some 85 percent of this, or about P26.87 billion, would come from the tobacco companies; only a small portion would be shouldered by alcohol firms. The data also showed that taxes from fermented liquor would amount to P3.03 billion; those from distilled spirits would total P1.45 billion in 2013. On the second year of the law’s implementation, or in 2014, the additional revenues from excise taxes will amount to P39.02 billion, P42.68 billion in 2015 and P41.51 billion in 2016. In all these years, taxes from cigarettes will account for close to 90 percent of most of the excise taxes. The rest will come from distilled spirits and fermented liquor. The bill also calls for an 8-percent increase in the excise-tax rates every two years, from January 1, 2015, until January 1, 2025. Congress needs to approve the excise tax this year after the expiration of the sin-tax law in 2011. Failure to legislate another tax measure would result in an effective price freeze on the so-called sin products. Assistant Finance Secretary Ma. Teresa Habitan said congressmen amended the original measure leading to the large disparity of taxes that would come from tobacco and alcohol products. “The House-approved bill amended the proposed provisions of the DOF bill, especially on alcohol products,” Habitan said. The DOF’s original proposal was expected to generate some P60 billion in new revenues, half of which would come from tobacco products and the other half from alcohol products. Under the DOF’s proposal, there would only be one rate for fermented liquor at P25. But the legislators preferred a two-tier rate of P13.75 for fermented liquor for those brands priced P50.60 and below and P18.50 for higher-priced brands. Legislators also halved the rates for distilled spirits at P20 for products with net retail price of P90 from the DOF’s original proposal of P42. According to the current version, distilled spirits priced less than P90 would be taxed P20 per liter; between P90 and P150 would be levied an excise tax of P80 per liter; while P150 and above would have a rate of P320 per liter. The approved tax rates for tobacco products were also lower, Habitan said. The current version would charge P28.30 for products with a net retail price of more than P11.50 per pack, and P12 for products with a price less than P11.50 per pack. Under the DOF proposal, the rate was at P30 and P14, respectively. The DOF believes the higher price of sin products would not lead to smuggling of counterfeit cigarettes, the problem of most countries in Southeast Asia.