Malaysia: Tobacco Farmers Prepare for Impact of Sin Taxes

Source from:  Malaya Business Insight  01/25/2013

Tobacco farmers will start harvesting their crop this February.
 
So far, says the National Tobacco Administration (NTA), new "sin taxes" are not killing the tobacco industry.

"It's too early to tell," said NTA head Edgardo D. Zaragoza. "These first few weeks, there's no big reduction in cigarette consumption, but we don't know as time goes by.
 
"Of course the tobacco industry will be affected but we don't know how much yet," he said of the sin taxes. "And it will ultimately affect farmers if cigarette sales go down because of higher prices brought by higher taxes."
 
"The way we see it, the sin tax may reduce consumption but will not totally kill the industry," he told Malaya Business Insight. "Other countries have also increased cigarette taxes but their cigarette industries are still there. We would like to assume that this will also happen in the Philippines."
 
But then again, said Zaragoza, an accountant and business management expert, if the purchasing power of consumers don't go up, chances are, cigarette consumption will go down.
 
"We are  confident tobacco farmers won't be affected because of the huge requirement of the local tobacco industry," he said.
 
Local tobacco farms fill only half of the industry's needs while imports fill the rest.
 
One reason for the gap is that exports of premium tobacco is also high, about half (52.5 percent) or 42 million kilograms (kg) of the 80 million kg harvested in 2011, Zaragoza said, adding "there's still a lot of room for local tobacco production."
 
"There is demand and both the local and export markets are still open," he said, adding manufacturers are still interested in expanding their volume.
 
"There have been no complaints yet from the farmers," he said. "As long as all their produce  is bought at the right time and the right price, there is no problem."
 
Traders and manufacturers have agreed to buy all tobacco harvests in 2013, he said, referring to the annual commitments that the NTA gets from the industry.
 
"We have commitments from the private sector to buy all tobaccos in cropping season 2012-2013," he said; the commitments are made by buyers each year before the planting season.
 
The floor price is fixed every two years by a tripartite conference composed of the NTA, farmers and the private sector to guarantee a minimum 25 percent income from the cost of production.
 
The actual buying rate is actually a little higher  than the floor price, currently pegged at P67 to P68 a kilogram.
 
Higher taxes were imposed January 1 on cigarettes, beer, liquor, wine and other tobacco and alcohol products. Excluding the excise tax and the 12-percent value added tax, the Sin Tax Reform Act of 2012 pegs the tax on cigarettes packed by hand – the major tobacco products sold – at P12 per pack for those with a net retail price of P11.50 and below. The tax is P25 for cigarette products priced higher.
 
For cigarettes packed by machine, the new tax will be P12 if the cost per pack is P11.50 or below; it's P25 for packs that cost more than P11.50. Cigars will have an additional P5 tax per cigar.
 
The rates will go up to P17 and P27 in 2014, P21 and P28 in 2015, and P25 and P29 in 2016. There will be a single rate of P30 per pack starting 2017, rising by 4 percent every year.
 
In contrast, the previous taxes ranged from P2 per pack for low-priced cigarettes to P28 for  premium products.
 
Including alcohol products, the sin tax is expected to increase tax collections to P33.96 billion this year, P42.82 billion in 2014 and up to P64.18 billion by 2017 – or P248.49 billion in five years. Seventy percent of these would come from tobacco products.
 
Fifteen percent of incremental revenues is mandated for programs that would benefit tobacco farmers.
 
Of the remaining 85 percent, 80 percent shall be allocated for health care under the national health insurance program, the attainment of the United Nations Millennium Development Goals and health awareness programs; and 20 percent shall be allocated nationwide for medical assistance and projects to enhance health facilities to be determined by the Department of Health. Enditem