FEB.

13, 2012 DATE

NR # 2678C
REF. NO.

Solons warn DOF about dire consequences of Palace bill on sin tax reform
Officials of the Department of Finance met a deluge of questions and concerns from House members during the DOF briefing on the Palace version of the sin tax reform bill, which were mostly about the negative effects of the measure on tobacco farmers and consumers, and the basis of the DOF computation on estimated incremental revenues. During a briefing conducted last week by DOF Undersecretary Jeremias Paul, Jr. and Assistant Secretary Teresa Habitan before the House Committee on Ways and Means chaired by Rep. Isidro Ungab (3rd District, Davao City), lawmakers raised numerous questions and concerns about the administration proposal, House Bill 5727, which seeks to restructure the excise tax system for alcohol and tobacco products by adopting a unitary tax system. The DOF officials were asked to continue their briefing tomorrow, Tuesday, as the committee resumes its hearing on HB 5727 authored by Rep. Joseph Emilio Abaya (1st District, Cavite) and the substitute bill to HBs 2484, 2485, 2687, 3059, 3183, 3332, 3465, 3489, 3666 & 4787. Lawmakers warned of dire consequences of the proposed unitary tax system which could only encourage illicit trade like smuggling and counterfeiting of cigarettes. Rep. Jose Ping-ay (Party-list, COOP NATCCO) said imposing a single tax rate for low grade and high or premium grade cigarettes will kill the local industry. “It will definitely kill the local industry because nobody will buy the local class Virginia leaves anymore. Why? Because they will be imposed the same tax as the premium leaves. This will encourage the importation, and even illicit trade, meaning smuggling and also counterfeiting, of cigarettes,” he said. Ping-ay said the dire consequences like smuggling should be discussed by DOF officials in their briefing on HB 5727. “These are consequences which I do not hear from the honorable representatives of the DOF. These are the things we are looking into. So what are the consequences of an encouraged illicit trade? Instead of increasing revenue, I am very sure revenue will go down.” Rep. Eufranio Eriguel (2nd District, La Union) questioned the effect of the unitary tax system on the price of cigarette products, noting it was mentioned in the DOF briefing that prices of cigarettes would increase. “What will be the effect on our farmers, our stakeholders? If the price is increased, the effect on the farmers will be tremendous. The focus now is on the high-end, it means more people will smoke high-end cigarettes. Siguro most Filipinos will be smoking mga imported na. And I was just wondering, will this increase smuggling later on, kung puro high end na ang cigarettes natin?,” said Eriguel. Rep. Vincent Crisologo (1st District, Quezon City) asked the DOF officials if the possibility of smuggling was tackled when they prepared the bill. “Was the possibility of smuggling contended with because you see when you will make the excise tax system one tier, the prices will go up

FEB. 13, 2012 DATE

NR # 2678C
REF. NO.

naturally. The lower brands of cigarettes will die down. Most of the cigarettes coming in will be imported.” Crisologo said people will continue smoking even if the price of cigarettes will increase but then they will be encouraged to smuggle imported cigarettes. “You are contending that we will have a higher income, but people will be encouraged to smuggle. Did you take into contention the smuggling of imported cigarettes? Smuggling might become rampant.” He said the reason why cigarette smuggling is not rampant now or is nil is because of the lower tier under the present tax system. “He said people can still afford to buy cigarettes and the higher bracket cigarettes cannot afford to compete with those in the lower bracket because their prices are too low. That is why di masyado ang smuggling ngayon. So, was this taken into consideration?” Paul said tobacco taxes are not the primary reason for cigarette smuggling. He said levels of smuggling tend to increase with the degree of corruption in a country, and that many countries have significantly increased tobacco taxes without experiencing changes in smuggling or illicit productions. “Experience shows that these illegal activities can be controlled by legal means such as prominent tax stamps and serial numbers, special package markings, health warning labels in local languages by law enforcement, improving corporate auditing, better tracking systems and good governance,” said Paul. Meanwhile, Rep. Ma. Milagros Magsaysay (1st District, Zambales) asked for a breakdown of the DOF estimated incremental revenues for cigarettes to determine which class will be most affected by the unitary tax system. “Which class will be most affected, is it the premium, high, medium or low? The premium class and high class definitely do not use local tobacco. All their components come from imported Virginia tobacco. The low class and medium class brands are really the ones using the products of our local tobacco farmers. That’s why it’s very important to know where will the volume of the P55 billion revenue come from so we would know if the sector of our farmers will be affected or not.” Habitan said while the government is going toward a unitary rate, this will not be happening on the first year of implementation of the tax reform law. She said the P60 billion or P55 billion refers only to the impact on the first year of tax reform. The single tier will happen by 2014. Under the DOF reform proposal, the estimated incremental revenues from cigarettes, distilled spirits and fermented liquor is P60.7 billion for the first year, P84.3 billion for the second year, P118.4 billion for the third year, P128.5 billion for the fourth year, and P139.3 billion for the fifth year. (30) rbb