The House Committee on Ways and Means approved on Monday a Mighty Corp.-backed bill seeking to maintain a two-tiered excise tax on cigarettes despite strong opposition from the national government, farmers, tobacco manufacturers, and nongovernmental organizations and health groups.
Twenty-six members of the Ways and Means Committee approved the House Bill (HB) 4144 filed by Representative Eugene Michael de Vera of ABS party-list that proposes a P32 tax rate per pack for cigarettes priced at P11.50 and below and P36 per pack for cigarettes with a net retail price of above P11.50.
This bill seeks to amend the Section 145 (C) Sin Tax Reform Law passed in 2012 which provided for a move toward a unitary excise tax rate system for cigarettes by the year 2017 and indexed the tax rate to inflation by increasing it by 4 percent annually.
Effective this year, if the net retail price (excluding excise tax and the value-added tax) is P11.50 per pack or less, the tax shall be P25 per pack; and if the net retail price is more than P11.50 per pack the tax shall be P29.00 per pack.
By January 1, 2017, however, these two tiers, intended as a transitional measure, shall eventually converge to a unitary rate of P30 per pack.
HB 4144 said that with the uniform excise tax rate, consumers would prefer to buy high priced cigarettes because the price disparity between the high priced and low priced cigarettes would be minimal.
“Imbued by competition, cigarette manufacturers may also opt to import tobacco leaves instead of purchasing the locally grown tobacco leaves considering that tobacco leaves grown abroad are of better quality, thus diminishing the demand for tobacco leaves produced domestically especially for the lower grade tobacco types such as Grade D, E, F-1, F-2 and R,” it said, noting that these lower classified leaves comprises of 20 percent to 30 percent of the leaves in one single stalk of cigarette.
The bill said it seeks to address this serious concern to protect the welfare of tobacco farmers by maintaining the current excise tax system on the cigarette packed by machine to two tiers instead of shifting to unitary excise tax rate in 2017.
“A unitary tax is highly regressive and anti-poor,” said former Cabinet member Romulo Neri, who is now a consultant at Bulacan-based cigarette manufacturer Mighty Corp.
In a position paper, the Department of Finance said it is strongly opposing the passage of HB 4144 saying that more than a revenue measure, the Sin Tax Reform Law or RA 10351 is a health measure with a primary goal of curbing tobacco use in particular among the young and the poor because of its known detrimental effects to health.
“A two-tiered structure only promotes downshifting and therefore does not fully discourage tobacco consumption,” it said.
Citing data from the Bureau of Internal Revenue, the DOF said the volume of removals of locally manufactured cigarettes packed by 20s show that in 2012, the share of low-taxed low-priced cigarettes to total was around 62.8 percent with the share of high-taxed high-priced at 37.2 percent. During the law’s first year of implementation, the share of low-taxed low priced cigarette to total rose to 82.7 percent while the share of high-taxed high-priced declined to 17.3 percent.
The DOF added that a tiered structure leads to widening of price dispersion in the long run which is not good for both fiscal and public health.
“Using percentage to index two or more tax rates will widen the gap in the long run, e.g., 5 percent of P32 is smaller than 5 percent of P36. In the process, revenue generation is not maximized and health objectives are not fully achieved,” it said.
The agency also pointed out that the welfare of tobacco farmers should be addressed via the expenditure policy not through the tax structure.
Earlier, the PhilTobacco Growers Association, and the Philippine Aromatic Tobacco Development Association (PTGA) representing 50,000 tobacco farmers across the Philippines also expressed its complete opposition to HB 4144.
“This Bill is being rammed through Congress and we have never been asked for our
opinion. The whole process is a sham and we call on the leadership of the House to seek proper consultation and a complete impact assessment before proceeding with it,” said Saturnino Distor, the PTGA leader.
For its part, giant cigarette manufacturer Philip Morris Fortune Tobacco Corp. (PMFTC) said the establishment under HB 4144 of two new tax tiers above the 2017 unitary rate under the current law will drive legal cigarette industry volumes lower, thereby impacting tobacco leaf demand, negatively impacting farmers.
“The provisions of the draft Bill therefore go directly against the stated objectives, that being to protect the livelihood of tobacco farming families and communities,” said PMFTC Corporate Affairs Director Richard James.
James added that the current law should be allowed to fully mature, and for a thorough and complete assessment of its impact to be conducted.
Sharing the same view is policy group Action for Economic Reform, noting that there are three losses in dual tax tiers: health consequences, revenue loss and lower assistance for farmers.
“Actually we calculated that you could increase your consumption by 50 percent if you downshift so we really wanted a unitary tax tier. Second, this is a loss in terms of revenue; we wanted administrative efficiency you don’t want manufacturers to misclassify their products and you want efficiency as well. And lastly, on farmers we’ve seen that for the longest time we have been earmarking funds for farmers and we’ve seen that it is beneficial for them because it provides them not just production and development of tobacco but ways for them to develop alternative crops,” said Madeline Joy Aloria, AER research associate.
Lastly, health group Action on Smoking and Health (ASH) said the bill runs contrary to the objective of the Sin Tax Law when it was passed in 2012.
“We successfully passed the law to make sure we will have one tax rate for cigarettes, regardless of price, in 2017. A bill was filed to stop it and retain the existing dual tax rate despite the potential health benefit of a single tax rate to price-sensitive population, specifically the young and the poor,” ASH President Roberto del Rosario said.
AHS said it is unfortunate that some members of the House of Representatives are undermining the Sin Tax Law this early when it is yet to be fully implemented next year.
“May the anti-health legislators not succeed in passing House Bill 4144 in the guise of protecting tobacco farmers,” del Rosario added.