A “SIGNIFICANT IMPACT” to employment “particularly in tobacco farming” is “unlikely” to arise from a reform of excise taxation in the country, the International Monetary Fund (IMF) said in a new report on the restructuring of the Philippine tax system released on Monday.
The report by the IMF Fiscal Affairs Department, “Road Map for a Pro-Growth and Equitable Tax System,” among others, recommended the adoption of a unitary tax system and indexation of excise taxes to inflation. Tobacco tax reform is one element in the House Bill 5727 currently pending before the House Ways and Means Committee.
“Even when worldwide tobacco taxes increase, they are unlikely to have a significant impact on tobacco dependent employment in most countries,” the report stated.
“Some argue that the [excise] tax increases will result in job losses, noting that many are employed in tobacco growing, manufacturing and distribution. However, many of the jobs that are counted in estimates of the economic contribution of tobacco are far from dependent on tobacco, but rather involve tobacco in some limited way, often indirectly,” it explained.
“Retailers who sell tobacco products” are among those, the report said, but added that tobacco is only “among many other products” sold by these firms.
Those jobs that “can be considered truly dependent on tobacco” are also safe, IMF said. These jobs are tobacco farming “which are often part time and for which tobacco is one of several crops,” tobacco leaf drying and warehousing “which involves very few jobs,” and tobacco manufacturing.
“When it is argued that higher taxes on tobacco products lead to employment losses, this argument ignores the fact that shifts in spending away from tobacco products generate new employment in other sectors, with the net impact generally positive,” the IMF explained.
It pointed to tobacco exports as a major factor being ignored by critics, saying “tobacco producers increase sales abroad when faced by declining domestic demand.” “So it seems unlikely that tobacco farmers would be very adversely affected by increases in tobacco excises,” the report added.
For liquor, the IMF said reform is necessary so as not to “differentiate between domestic and imported brands with same alcohol content” as prescribed by a recent ruling from the World Trade Organization.
IMF said excise tax reform is needed to address the declining revenue share from tobacco and liquor duties “from 2.6% of GDP in 1997 to 0.8% of GDP in 2010.” The Finance department has estimated P60 billion in additional revenues in the first full year of the reform’s implementation. Bulk of the amount will be dedicated to the universal health care program of the Aquino administration.
Based on simulations done by the Bureau of Internal Revenue (BIR), provinces that have been allocated shares of excise taxes from tobacco will not only maintain their allocation but will even be receiving additional from the incremental revenues. The rest will receive additional funding for improved health care services to be financed by the increased collection of excise taxes.
“These additional investments in rural health care units and professionals will not only improve our health outcomes, but will also have a multiplier effect in employment, not just in Northern Luzon, but in Central and Southern Luzon, Visayas and Mindanao,” BIR Commissioner Kim S. Jacinto-Henares said.
“The facts clearly support our case. Companies will expectedly fight tooth and nail to safeguard their profits, but the government will not back down in pushing for what is best for the people,” she added.