THE poor will have to pay a much higher percentage tax than the rich under a regressive unitary tax system on cigarettes, according to a former Cabinet official.
In a unitary tax system the poor and the rich will pay the same P30 tax for a pack of cigarettes even if the rich tend to consume the more expensive brand, economist and former National Economic Development Authority Director General Romulo Neri said.
House Bill 4144, which seeks to keep a two-tiered tax system on cigarettes, intends to correct this regressive and anti-poor provision in the current law while protecting the livelihood of tobacco farmers, he said.
“In countries where tobacco use is inversely related to income, the regressivity of tobacco taxes is exacerbated. In the Philippines, the poor use up 2.8 percent of their inco me on tobacco consumption while the rich only us 0.8 percent,” Neri said.
The burden of paying the same unitary specific tax will have a much heavier impact on the poor than the rich, making even worse its regressive nature, the former Cabinet official noted.
“That’s why in EU countries they impose two types of taxes on tobacco: a specific tax component to set a minimum floor high enough to discourage smoking and at the same time an ad valorem tax so that cheaper brands will pay less taxes than the premium brands. This make the tax system less regressive for the tobacco consumer and levels the playing field between the manufacturers of cheaper brands vis-a-vis the makers of premium brands,” he said.
Citing a 2015 report by the Southeast Asia Tobacco Control Alliance, Neri said the ad valorem and multiple tax systems are the dominant mode of imposing taxes on tobacco in Southeast Asia – and not the unitary tax system.
Ad valorem tax is in place in Cambodia, Myanmar and Vietnam, while Thailand, Malaysia and Laos use a mix of specific and ad valorem taxes. Indonesia uses multiple tiers of specific taxes on tobacco. Only Singapore and Brunei practice a unitary specific tax system, Neri noted.
“Contrary to the claim of its detractors, HB 4144 will not increase the prevalence of smoking since it will increase tobacco taxes by an even higher rate than the previous bill which will increase the tax rates from 25 to 30 (a 20 percent increase) for the cheaper brands and 29 to 30 (a 3 percent increase) for premium brands,” he said.