WHETHER celebrating festive occasions or sulking and fretting on gloomy situations, Filipinos have one favorite pastime, whether done solo or in group: drinking alcoholic beverages. Deeply embedded in the Filipino culture, among the old and young alike, is socializing, which is swiftly facilitated by a constant companion, liquor. As a matter of fact, each region in the country is famed for each own alcoholic drink “specialty.”
Speaking of which, I am reminded of a renowned Italian poet in the person of Ovid who once remarked that “Wine gives courage and makes men more apt for passion.” I couldn’t but agree. On a lighter note, Robert Heinlein, an American science-fiction writer, cautioned everyone: “Be wary of strong drink. It can make you shoot at tax collectors... and miss.” One cannot simply feign ignorance on the implication of Heinlein’s satirical statement, more so, in light of the ongoing tax dispute between the Philippines and the European Union and United States tandem.
On August 15 the Geneva-based World Trade Organization (WTO) released its 112-page panel report, which found the Philippines’ tax on imported liquor and distilled spirits illegal for being discriminatory.
The WTO ruled that “through its excise tax, the Philippines subjects imported distilled spirits made from raw materials other than those designated in its legislation to internal taxes, in excess of those applied to domestic spirits made from designation raw materials, and is thus, acting in a manner inconsistent with Article III: 2, second sentence, of the GATT 1994.”
As you may recall, WTO rules generally bar WTO members from discriminating between imported and domestic products in their tax regimes.
In the panel report, it was pointed out that the taxes applied on imported distilled spirits are 10 to 50 times higher than those manufactured in the Philippines, causing a decline in European Union exports of liquor to the country. It must be emphasized that the European Union and the United States are the world’s No. 1 and No. 2 exporters of distilled spirits. The Philippines, on the other hand, is now emerging as one of the largest markets for alcohol in the Asia-Pacific region. Having this in mind, it is not a wonder that the European and United States business communities united as allies and staged a tax war, apparently, an overt effort to stifle our country’s nascent rise in this industry, thereby eliminating a potential threat.
In fact, even before the WTO decision in question becomes binding on the parties, as an appeal must first be taken to and processed by the WTO Appellate Body before it becomes final, both the EU and US have been sternly urging our government to heed the WTO ruling.
Believing the calls to adhere to the WTO pronouncement to be premature, Malacañang, in close coordination with Distilled Spirits Association of the Philippines (DSAP) and other government agencies, has already announced that it will appeal the panel report and pursue the Philippines’ rights under GATT 1994 and the WTO dispute settlement system.
Among the salient defenses raised by the Philippine government is that the base materials used in distilling were different, making the products different. Also, “the rates that apply to distilled spirits produced from raw materials such as sugar of the cane (molasses), buri palm, coconut, cassava, camote, etc., under Section 141(a) of the Tax Code are enjoyed by both domestic and imported spirits.” Moreover, although the Philippine distilled spirits market is big in terms of volume consumption, the bulk of which comes from the low-priced or economy brands. While the consumers of alcoholic beverages are nonchalantly in merriment or wallowing in tears in the midst of a drinking spree consuming said intoxicating substances, the exporters, manufacturers, producers, distillers and other men behind the affected industry are in a quandary on how to resolve this tax dispute.
Evidently, this legal predicament is akin to David and Goliath. One cannot help but speculate on what will come out of this dilemma. Will this be another classic case of unfairness between global powers exerting their hegemony over a frail and vulnerable third-world economy? Let’s keep our fingers crossed. And by the way, drink responsibly!
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The author is a junior associate of Du-Baladad and Associates Law Offices, a member-firm of World Tax Services Alliance.
The article is for general information only and is not intended, nor should be construed, as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at This e-mail address is being protected from spambots. You need JavaScript enabled to view it , or call 403-2001, local 360.
