Part Two
THE pronouncements of Finance Secretary Carlos G. Dominguez III on seeking other revenue sources to further fund the spending of the current government on infrastructure
development and social services are said to fall under the revision of a number of tax regimes, one of which is the increase in excise tax imposed on “sin” products, like alcohol and tobacco.
The plan for tapping more revenue streams by the government to fund its projects for the betterment of the Philippine economy is in line with President Duterte’s 10-point socioeconomic agenda. The agenda includes lowering personal- and corporate-tax rates. The decrease, in turn, is noted to be offset by implementing more tax revenue-collection schemes to sustain government revenues.
“I think this is the time to further look into the ‘sin tax’ cited by the finance secretary [Dominguez],” Albert E. Domingo, World Health Organization (WHO) regional office consultant, said in a forum on alcoholism.
More studies
DOMINGO’S view is supported by non-governmental organization Action for Economic Reform (AER). AER is calling for a study and implementation of reform on the country’s sin-tax scheme.
In a recent event, the AER explained the excise tax imposed on alcohol products is not being fully maximized by the government as opposed to excise taxes on tobacco products.
A statement by the AER noted that the excise tax on alcohol and tobacco products are potential revenues sources because of its high sales volume. With few producers in the industry also makes collection simple, the AER said.
Tax-policy reforms through the imposition of higher excise taxes on tobacco and alcohol can complement tax administration reforms on increasing revenues while moderating tax rates, the group said.
“We need to have more studies, especially [since] we are starting at a very low tax for alcohol,” AER Senior Economist Jo Ann L. Diosana said in a forum late August. “We really need to have more data on it [tax on alcohol] because [the law] has been there for quite some time but [revenue from excise tax on alcohol] hasn’t been increasing that high.”
Diosana said the first significant increase was in 2013.
Tiered
IN 2011, under Republic Act (RA) 9334, or the sin-tax law, it was noted that taxes on alcohol and tobacco products have remained low, which failed to generate significant revenue for the government. This caused the share of so-called sin products to decline in terms of share in the economy’s GDP.
Under the tax scheme of RA 9334, tax and pricing of tobacco and alcohol products are divided into tiers.
Local distilled spirits, regardless of price, are given a tax rate of P14.68 per proof liter. Imported spirits with an NRP of P250 and below are given a tax rate of 158.72 per proof liter. Those with an NRP of P250 but not over P575 are taxed at a rate of P317.45. Products with an NRP of over P575 each are given a tax rate of 634.89 per proof liter.
Alcohol products classified as fermented liquor are taxed differently. Products that have an NRP of P14.50 and below are taxed at P10.42 per liter. Fermented liquor with an NRP of P14.50 but not over P22 is given a tax rate of P15.49 per liter. Products priced at P22 and over are taxed at P20.57 per liter.
The low taxes imposed on these products made it affordable to Filipino consumers. However, the low taxes increased consumption rates but saw a decrease in tax revenues for the government.
New law
WITH the introduction of RA 10351, or the new sin-tax law, in 2013, revenue levels from excise taxes imposed on sin products increased. The government reported total excise revenue of P103.4 billion in 2013, from the P55.7 billion in 2012.
The Bureau of Internal Revenue (BIR) said it was able to collect P91.8 billion from excise taxes in the January-to-November 2013 period. BIR documents said the amount exceeded the bureau’s target of P85.8 billion for the whole year on both alcohol and tobacco products.
Under the new sin-tax law, a one- tiered taxing scheme is implemented, rather than a multitiered system, for easier administration of the government collecting agencies. The scheme incorporates increases in tax rates annually, and then a 4-percent increase yearly when the year 2018 starts.
Distilled spirits are either under the ad valorem tax classification and imposed a P20 tax for 2015 and P20 for 2013, with a 4-percent increase annually starting this year. Products classified under specific tax are imposed a 20-percent tax of its NRP in 2015 and 15 percent in 2013.
For fermented liquor, products that are priced at P50.60 and below are given a tax of P23.50 for 2017, P21 currently, P19 in 2015, P17 in 2014 and P15 for the year 2013, with an increase of 4 percent every year starting 2018.
Products priced above P50.60 are imposed a tax rate of P23.50 in 2017, P23 in 2016, P22 for 2015, P21 for 2014 and P20 for 2013.
Effects
THE significant tax increase in 2013 was noted to effectively discourage smoking and excessive drinking and simultaneously generated ample revenues for public services.
On its first year of implementation, the new sin-tax law generated additional revenues of P33.96 billion, P10.56 billion of which came from excise tax on alcohol products.
Hence, Diosana said the government can continue relying on these taxes. She also debunked the view that raising more taxes on alcohol products would be adversarial to the market.
“The companies would still depend on demand. They wouldn’t produce without demand,” she added. “If the market has shrunk, then they [companies] will adjust accordingly because that is added cost to them.”
Diosana even downplayed the impact on government revenue in 2013 with the introduction of a new sin-tax law.
“The market has adjusted with the increase already and income levels are also increasing, which strengthens the purchasing power of the people,” she explained. “This means that the drop in consumption for 2013 is not enough. It has to be sustained.”
Diosana said the unitary taxation system is better as it simplifies the tax administration by imposing a uniform rate and discourages downshifting by reducing the price gap among brands. With the removal of the price classification freeze, all brands will pay taxes based on their current prices, further increasing cigarette and alcohol prices.
To be concluded
Image credits: Alysa Salen