Philippines: Government Insists Tobacco down with ''Sin'' Tax Law

Source from:  Business Mirror  03/20/2014

THE Department of Finance (DOF) has refuted the observations made by a tobacco company executive that the consumption of cigarettes has not gone down despite the imposition of higher excise taxes on "sin" products.

Finance Undersecretary Jeremias N. Paul Jr. told a Senate hearing last week that during the deliberations for the passage of Republic Act (RA) 10351, or the new sin-tax law, it was agreed that the basis for determining the actual consumption of cigarettes and alcohol shall be the withdrawal of these products from warehouses as monitored by the Bureau of Internal Revenue (BIR).

The withdrawal of cigarettes from the warehouses declined by 16 percent to 4.9 billion packs since the new sin-tax law took effect on January 1, 2013; while withdrawals of alcohol products declined by 11.2 percent.

"This is a more accurate basis for determining the consumption of these sin products," Paul said, refuting surveys made by private survey firms regarding the consumption of cigarettes.

British American Tobacco Philippines General Manager James Lafferty said the consumption of cigarettes is expected to be sustained despite the higher excise taxes on sin products starting January 1, 2014.

The total collection of excise taxes on sin products during the first year of implementation of the new sin-tax law amounted to P100.9 billion. Of this amount, the total actual incremental revenues from sin products is P51.5 billion.

During the Senate hearing, it was pointed out that the new sin-tax law was passed primarily for the health benefits that would result from it, and not for the revenues that the government stands to collect from the
increased excise taxes. To achieve this primary goal, the law intended that the excise taxes be high enough to force smokers to quit, while allocating the incremental revenues for livelihood projects for tobacco farmers and health programs for the poor.

P51.4 billion in fresh revenue

The government generated P51.4 billion in fresh revenue from the implementation of the sin-tax reform law in 2013, surpassing expectations.

RA 10351 or Sin Tax Reform Act of 2012, which took effect in January 2013, was projected to generate P34.1 billion in incremental revenues in its first year of implementation.

Of the total incremental revenues from the new law, the government generated P42.1 billion in fresh taxes from tobacco products, and P9.3 billion from alcoholic beverages in 2013.

The government had only projected P23.4 billion in new excise-tax collections from cigarette manufacturers and P10.6 billion from manufacturers of alcohol beverages.

Finance Secretary Cesar V. Purisima had earlier said the collection from sin taxes had significantly boosted government revenues.

"I see a better prospect in 2014 for the sin-tax law because there are no longer overstocking and price manipulation. The numbers were quite good [in 2013] it helped the Bureau of Internal Revenue dramatically," he said.

With the implementation of the sin-tax reform law, the BIR's total excise- tax collections in 2013 surged 85.6 percent to P103.3 billion from P55.7 billion in the previous year. Data from the DOF showed total excise-tax collections from tobacco products doubled to P70.4 billion in 2013 from P32.2 billion a year before. On the other hand, total excise-tax revenues from alcoholic beverages jumped 40 percent to P33 billion.

"The significant increase in collections came even with an equally significant drop in the volume of cigarette and alcohol produced in the market," the DOF said.

This year the government is targeting a 22-percent increase in total excise-tax collections from tobacco products and alcoholic drinks to P104.79 billion.