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THE World Bank wants the Philippines to shift to a
uniform and higher specific excise tax rate on tobacco products.
The Washington-based lender said
the country’s tobacco excise tax rate and excise burden are among
the lowest in the world, and revenues have been declining as a
percentage of the economy over the past 10 years.
“If properly taxed, tobacco
products can be a large source of revenues,” Bert Hofman, World
Bank country director said in a letter to the Department of Finance.
The finance department had said
that it has tapped the International Monetary Fund and World Bank
for a review of the existing excise tax law.
Proper collection of tobacco
product excise taxes could generate P86.5 billion in additional
revenues for the government, the World Bank said.
Hofman presented two scenarios to
the government. The first is shifting to a uniform and higher
specific excise tax rate that is automatically linked to inflation.
This guarantees that both the excise tax incidence and burden would
not fall over time.
The second scenario is the
exclusion of specific rates from the law and their referral to a
schedule of rates that would become part of the annual budget
submission to Congress.
Hofman said the government can
expect to raise an increment of 1.3 percent of gross domestic
product (GDP) under the first scenario, or 10 percent provided every
peso increase in excise rates will generate P2 billion in extra
revenues.
The finance department has
proposed to have a single tax rate for all sin products, including
cigarettes and alcohol products.
Finance Secretary Margarito B.
Teves had said a single tax rate on all sin products will be easier
to administer and will even help improve tax-collection efficiency.
“On the issue of taxes on sin
products, the general direction that we would like to see is one tax
rate for alcohol products and one tax rate for tobacco products,
with both rates indexed to inflation,” he said.
The department wants a review of
the current excise tax structure on cigarettes and liquor, as
estimates show P34 billion in potential revenues foregone given the
failure to update the rates since 1997.
The country has a four-tier
system resulting in a 640-percent tax differential between
low-priced and premium-priced brands.
--Chino S. Leyco
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