Noted economist Romulo Neri, former director general of the National Economic and Development Authority, on Monday said a regressive unitary-tax system will inequitably require the poor to pay a much higher percentage tax than the rich, who consume more expensive brands, because both of them will pay the same P30 tax per pack.
Neri, who held key positions in President Gloria Macapagal-Arroyo’s government, pointed out that House Bill (HB) 4144 intends to correct this regressive and antipoor provision in the current law while protecting the livelihood of poor Filipino tobacco farmers.
“In countries where tobacco use is inversely related to income, the regressivity of tobacco taxes is exacerbated. In the Philippines the poor use up 2.8 percent of their income in tobacco consumption, while the rich use only 0.8 percent,” Neri said. He pointed out, “The burden of paying the same unitary-specific tax will have a much heavier impact on the poor than the rich, making even worse its already regressive nature.”
“That’s why,” Neri said, in “European Union countries, they impose two types of taxes on tobacco: a specific tax component to set a minimum floor high enough to discourage smoking and, at the same time, an ad valorem tax, so that cheaper brands will pay less taxes than the premium brands. This makes the tax system less regressive for the tobacco consumer and levels the playing field between the manufacturers of cheaper brands vis-à-vis the makers of premium brands.”
Based on a report by Southeast Asia Tobacco Control Alliance in 2015, ad valorem and multiple-tax systems, and not unitary, is the dominant mode of imposing taxes on tobacco in Southeast Asia.
Ad-valorem tax is imposed in Cambodia, Myanmar and Vietnam, while Thailand, Malaysia and Laos use a mix of specific and ad valorem. Indonesia uses multiple tiers of specific taxes on tobacco. Only Singapore and Brunei practice a unitary specific tax system.