Phillipines: Sin Tax Scheme Cost Gov''t P32.4 Billion

Source from:  Business World 11/29/2012

THE CURRENT excise tax structure on alcohol and tobacco must be overhauled as it has led to foregone government revenues totaling P32.4 billion in the last five years, data from the Finance and Health departments showed. A total of P19.5 billion was foregone in the taxation of tobacco in the years 2006-2010. This could have been used to fund public health care, such as pay of 203,125 registered nurses; premium subsidy for the health insurance of 8 million indigent families; influenza and pneumonia vaccines for 11 million senior citizens; rotavirus vaccines for 29 million children; and various vaccines for 9 million children. Meanwhile, P12.9 billion was foregone in the taxation of alcohol from 2006 to 2010. This could have financed the pay of 134,375 registered nurses; premium subsidy for the health insurance of 5.4 million indigent families; influenza and pneumonia vaccines for 7.5 million senior citizens; rotavirus vaccines for 19.2 million children; and various vaccines for 6.2 million children. This gap is mainly due to the price classification freeze in the current excise tax structure, where alcohol and tobacco products are taxed based on their 1996 prices, the study showed. Consequently, low-priced cigarettes are taxed only P2.47 per pack when, based on 2010 prices, they must be levied P8.96. Medium-priced cigarettes are taxed P7.14, while premium ones are taxed P11.43, when they must both be charged P27.16. Alcohol, meanwhile, must be taxed about P19.05 per liter based on 2010 prices. However, they are only taxed P9.65 for low- and high-priced brands, and P14.35 for medium-priced brands because the rates are pegged on 1996 prices. Moreover, since the excise tax is levied depending on the net retail price of alcohol and tobacco, users can simply shift to low-cost products to sustain their smoking and drinking, instead of cutting down on consumption, the study read. In 1993, low-priced cigarettes made up less than 40% of the total volume of cigarettes. However, this rose to more than 60% as of 2011, with users of middle-priced cigarettes shifting down, it explained. The trend was much more stark in alcohol. Low-priced beer accounted for less than a third of total volume in 1993. Last year, it comprised almost 75%. Middle-priced beer dwindled from about 70% of the total volume in 1993 to about 15% in 2011. The Senate has started deliberating the "sin" tax bill, which aims to overhaul the excise tax system for alcohol and tobacco products. The Senate ways and means committee held its first hearing last week, and the second one will take place on Thursday. The Finance department will file its own version of the "sin" tax bill, which will push for the abolition of the price classification freeze and the creation of a unitary tax tier. It will also raise excise tax rates and peg subsequent increases to inflation. The House of Representatives approved its version of the measure last June. Malaca?ang hopes to enact the measure by yearend. Enditem