CLAIMS of tobacco and liquor companies against the proposed sin tax reform are exaggerated and taken out of context, an official said, standing pat on the benefits of excise tax reform.
House Bill 5727, which calls for the adoption of a unitary tax system for tobacco and liquor and indexation of taxes to inflation, is now pending before the House Ways and Means Committee.
What they are saying against this vital reform is exaggerated. Things were definitely taken out of context, Finance Undersecretary Jeremias N. Paul, Jr. said on Thursday, citing a World Bank report to support his stand.
The World Bank, in its quarterly report to the Philippines last December, said Philippine excise taxes are far lower than its neighboring countries, putting it at the lower half of the bracket when compared to others as a share of retail prices.
As of 2009, data provided in the study showed excise tax as a percentage of retail sales price (RSP) of tobacco at 32.9% for the cheapest brands and 37.5% for both the most sold and premium brands. This compares to Pakistan (49.1%, 41.6% and 55.5%, respectively), India (65.5%, 27.3% and 39.1%, respectively); and Thailand (51.1%, 58.4%, 61.6%, respectively).
For liquor, World Bank also pointed to low excise tax-RSP ratio for the country amounting only to 26.1% for beer, 5.5% for wine and 35.8% for distilled spirits. These figures are significantly lower than ad valorem rates implemented in Thailand (55%, 60%, and 25-50%, respectively), Vietnam (50%, 25% and 25-50%, respectively), and Laos (50%, 60%, 60-70%).
The real revenue yield from excises on tobacco and alcohol has declined significantly since 1997. As a result, from 1997 to 2009, excise collection as a share of GDP fell by about 0.6% from an already low yield of 1.2% of GDP. Quite alarming, Philippine tobacco excise tax rates and burden are among the lowest in South East Asia, the World Bank said.
The shift to a uniform excise tax rate for all brands will remove production distortions, discourage consumption, and improve equity across brands. The current multi-tier price classification system has no clear policy rationale and is unique internationally. It therefore should be abolished, it added.
The World Bank further said: Given inelastic demand, excise tax rates should be set as high as possible to raise adequate revenues, discourage consumption, and correct externalities.
The multilateral agency projected that should the Finance department’s reform version be implemented starting this year, tobacco taxes will rise from 0.35% of gross domestic product (GDP) last year to 0.53%, 0.73% in 2013 and 0.90% in 2014.
For liquor, revenues are likely to increase to 0.46% of GDP this year, 0.52% in 2013, and 0.64% in 2014. Last year, liquor excise tax accounted for 0.27% of GDP.
As shown by the World Bank report, price elasticity of demand is inelastic, meaning, as price rises, consumption falls but by less than the percentage rise in price. Because of this, tax revenues will still increase, Paul explained.
Clearly, there will be substantial increase in revenues should the excise tax reform be implemented contrary to claims from various tobacco and liquor firms, he added.
The bill’s essence lies on the fact that while we slowly discourage smoking and too much drinking, we are shoring up more revenues to provide quality healthcare to all Filipinos.
