Phillipines: Sin Tax IRR Creates Confusion
Source from: Malaya Business Insight 01/08/2013
Utter confusion yesterday ruled the cigarette market after the BIR issued on Dec. 28, Friday, the implementing rules and regulations on the new excise tax law which was implemented three days later on New Year's Day.
Cigarettes were in short supply. The little available was being sold at nearly double the price under the old excise tax law. Charges of hoarding flew high.
The Philippine Amalgamated Supermarkets Association Inc. (PAGASA), which obviously did not know about promulgation of the IRR, was demanding for its immediate adoption while denying hoarding, saying "there is nothing to hoard".
The new excise tax law took effect on January 1, three days after the IRR was issued and published. Asked about the situation, an official of the PMFTC, the largest in the cigarette manufacturing business, said the dealers could not have sold their stocks that fast in the holiday season.
If they have run out of stocks, they would have come to us for more, the official said. They did not, he said. The suggestion is that there is massive hoarding by the dealers anticipating a higher price.
But confusion reigned in the market as the IRR remains unknown to many cigarette dealers. PMFTC, on the other hand, has practically completed its new pricing scheme under the new law.
The manufacturers and their dealers and distributors were moving in opposite directions after it became certain that the new excise tax law raising taxes by an average of 700 per cent became certain.
The manufacturers were trying to move their stocks as fast as they can under the old law which gave them more comfortable spreads. The market was also accumulating bigger inventories but was practically limiting sales anticipating bigger profits bought at the price in the old law, to be sold higher in the new law.
Reports from the cigarette industry indicate that the manufacturers are planning to question the IRR, if not the law itself, in court since, in the case of distilled spirits, there are charges of double taxation. Raw alcohol is charged tax. The distilled spirit is charged for its alcohol content (proof liter).
On the other hand, the IRR states that machine-packed cigarettes that retail for P11.50 and below is to be taxed P12 per 20 stick pack.
The rate goes up progressively until it becomes unitary at P30 per pack in the fifth year.
The cigarette industry, particularly PMFTC, is confused on what tax rate the BIR will apply on the 10-stick pack. The IRR is silent on whether or not the 20-stick pack and the 10-stick pack are to be charged the same rate.
Logically, the 10-stick pack should be charged 50 per cent less.
In an interview, president Steven Cua, president of PAGASA, said supermarkets have stopped selling cigarettes because they have either run out of supply or they are scared to be accused of profiteering by selling at excessive prices.
This argument does not sit with the fact that the pricing program of the cigarette makers has not been announced, surprised as they were by the sudden promulgation of the IRR without public hearing.
Supermarkets are the sources of cigarettes of smaller retailers – from vendors and sari-sari stores. They do not have enough funds to buy wholesale from the dealers.
The source said as it is, supermarkets get only P1 margin per ream, so they push cigarettes on volume to make up for the thin margins.
Exposing the fact that he has not read the IRR, Cua told Malaya Business Insight "the absence of the IRR has led everybody to speculate on the supply and the price."
Cua said those which have some stocks chose to control sales and display if only to show the market there is supply to go by. A small cigarette maker said dealers and distributors started hoarding supplies slowly after they were convinced that prices will go sky-high when the BIR starts implementing the new law.
According to another supermarket owner, cigarettes prices in the black market increased by as much as P193 per ream or to P501 from the previous P308, up about P50 per pack.
On the other hand, a retailer of imported, tax-free and local cigarettes in Harrison Plaza said he has not raised prices of his stocks. He observed that those who bought at low prices under the old law are probably feeling how the market would behave under the new law.
They are holding off and anticipating bigger profits.
Based on situations obtaining the whole day yesterday, the confusion over supply and prices were directly brought about by the publication of the IRR on Friday, Dec. 28 and its implementation starting Jan. 1. Enditem
