Philippines MACASAET:Sacrificing Local Cigarette Brands

Source from:  Malaya (ph)  06/06/2012

With the stealthy approval of the amended version of HB5727, Congress effectively legislates tobacco farmers and the local cigarette factories out of business.' IT is clear from the report of the House ways and means com-mittee that there is a deliberate design to decimate local ciga-rette brands to make room for the domination of imported brands. High-priced brands such as Marlboro and Philip Morris are to be reclassified to a higher tier and be taxed at P28.30 per pack. This is the same rate that will be imposed on the brands such as Lucky Strike to be imported by British American Tobacco. Prices of local goods are historically lower than the imported. This is a necessary protection for the local economy against the powers and influence of the giant corporations of the world. The better option would have been for the House ways and means committee to leave the local brands where they are now classified for tax purposes and leave it up to Congress to legislate a lower rate for premium brands to give them a chance to compete with imports. Finance Secretary Cesar Purisima chose to sacrifice local brands clearly to favor the cigarettes to be imported by British-American Tobacco. Simply but clearly stated, the authors of the unitary tax proposal are risking stability of collections by raising the tax of high-priced brands (those retailed at P11.50 or more per pack) from P12 to P28.30 per pack. The proposal is very much like taxing galunggong at the same rate as salmon which is imported. The effect is to narrow down the difference in price – through a uniform tax rate – in which case there would be a remarkable preference or shift to the im-ported kind. That tends to decimate the local product. Purisima need not be told that when a situation such as this arises, there will be job losses in factories and in the farms. The final result is smaller revenues for the government while the importers flourish, encouraged without doubt by a tax advantage so lavishly given by Congress as pushed by the secretary of finance. With the stealthy approval of the amended version of HB5727, Congress effectively legislates tobacco farmers and the local cigarette factories out of business. On the other hand, the same Congress legislates into business a foreign company that will import cigarettes and will neither create jobs nor use local tobacco. This violates all norms of a market driven system but the House ways and means committee and Purisima do not seem to care. What do they care about? We do not exactly know. What every-body knows is smuggling, an easy source of funds for terrorism, will flourish. Filipino tobacco growers will suffer from reduced demand. On the other hand, British American Tobacco will increase de-mand for leaf in such states like North Carolina. As if to prove that the brains of the proposal pulled from thin air the downward-revised P60 billion incremental tax from distilled spir-its, liquor and beer and cigarettes, the report of the ways and means committee cut the target by half to P30 billion. The target is probably more realistic. However, the sharing of tax burden is patently biased against cigarettes which is expected to share between P26 and P27 billion. That means alcohol, also a sin product will contribute only about P3 billion. The arithmetic of the ways and means committee reveals it all. Ex-cise tax on beer products will be raised from P10.41 per liter to only P13.75 per liter. The increase is three pesos or about 30 percent. The bias is evident in the upward classification of cigarette brands while beer is classified downwards. The committee report classifies pale pilsen as low priced brand. At present, it is classified as a mid-priced brand that pays P15.49 per liter. The rate is to go down under the committee report to P13.75. This, according to a tax expert, is the result of the reclassification that imposes a new cut-off of P50 per liter. The reclassification means pale pilsen's excise tax will not be raised by 2013 when a new law is expected to take effect. As provided in the committee report, the excise tax on pale pilsen will increase nomi-nally by 8 percent from 2015. San Miguel is not selling variants. SM Lights and SM Premium are now paying P20.57 per liter. Since the ways and means committee proposes a lower rate of P18.80 in 2013, they will pay only the "uni-tary" rate of 8 percent increase from 2015 onwards. Cigarettes regardless of category will pay the same additional in-dexed rate but not before being soaked by increases that run to thou-sands or many hundreds of percent before that year. One wonders if the modest rates would be uniform on beer and cigarettes if British American Tobacco was not proposing to come in. The practice of equal sharing of tax burden is forgotten and aban-doned in favor of an importer of cigarettes. Imported beer is unclas-sified. It will presumably pay the same rate as locally-brewed beer. At least there is no discrimination against local beer. The hope is a fine-toothed comb will be passed over both sin prod-ucts when the proposal reaches the Senate. It is unfortunate that under the law, only the House of Representa-tives may propose tax laws. It should be presumed that the House knows better than the Senate. In reality, however, it is the senators who put sense into these tax proposals.Enditem