Crossing party lines, the lawmakers warned that the Palace-initiated House Bill (HB) 5727 that has been termed as “sin-tax reform law,” will encourage illicit activities.
Party-List Rep. Jose Ping-ay (Coop Natco) said HB 5727, or the sin-tax reform proposal of Malacañang, which seeks to impose a single tax rate for low-grade and high- or premium-grade cigarettes, will kill the local tobacco industry.
“It will definitely kill the local industry because nobody will buy the local-class Virginia leaves anymore. Why? Because they will be imposed the same tax as the premium leaves. This will encourage the importation and even illicit trade, meaning smuggling and also counterfeiting, of cigarettes,” he said.
Ping-ay, who was briefed by officials of the Department of Finance on the proposed measure last week, along with other members of the House of Representatives, said the government totally focused its attention on revenues that may be generated by the bill and ignored consequences like smuggling and counterfeiting.
“These are consequences which I do not hear from the honorable representatives of the DOF. These are the things we are looking into. So what are the consequences of an encouraged illicit trade? Instead of increasing revenue, I am very sure revenue will go down,” he said.
The briefing was conducted by Finance Undersecretary Jeremias Paul Jr. and Assistant Secretary Teresa Habitan before the House Committee on Ways and Means.
HB 5727, authored by Liberal Party Rep. Joseph Emilio Abaya, wants to restructure the excise-tax system for
alcohol and tobacco products by adopting a unitary tax system.
Rep. Eufranio Eriguel of La Union questioned the effect of the unitary-tax system on the price of cigarette products, which the DOF acknowledged would increase.
“What will be the effect on our farmers, our stakeholders? If the price is increased, the effect on the farmers will be tremendous. The focus now is on the high end, it means more people will smoke high-end cigarettes. Siguro most Filipinos will be smoking mga imported na. And I was just wondering, will this increase smuggling later on, kung puro high end na ang cigarettes natin?” he said.
Rep. Vincent Crisologo of Quezon City asked DOF officials if the possibility of smuggling was tackled when they prepared the bill.
“Was the possibility of smuggling contended with? Because, you see, when you make the excise-tax system one tier, the prices will go up, naturally. The lower brands of cigarettes will die. Most of the cigarettes coming in will be imported,” he said.
Crisologo said people will continue smoking even if the price of cigarettes increases but then they will be encouraged to smuggle imported cigarettes.
“You are contending that we will have a higher income, but people will be encouraged to smuggle. Did you take into contention the smuggling of imported cigarettes? Smuggling might become rampant,” he said.
Crisologo said the reason cigarette smuggling is not rampant or is nil now is the lower tier under the present tax system.
Paul said tobacco taxes are not the primary reason for cigarette smuggling. He said levels of smuggling tend to increase with the degree of corruption in a country, and that many countries have significantly increased tobacco taxes without experiencing changes in smuggling or illicit productions.
“Experience shows that these illegal activities can be controlled by legal means, such as prominent tax stamps and serial numbers, special package markings, health-warning labels in local languages by law enforcement, improving corporate auditing, better tracking systems and good governance,” he said.
Rep. Milagros Magsaysay (Lakas) of Zambales asked for a breakdown of the DOF estimated incremental revenues for cigarettes to determine which class would be most affected by the unitary-tax system.
“Which class will be most affected, is it the premium, high, medium or low? The premium class and high class definitely do not use local tobacco. All their components come from imported Virginia tobacco. The low-class and medium-class brands are really the ones using the products of our local tobacco farmers. That’s why it’s very important to know where will the bulk of the P55-billion revenue will come from so we would know if the sector of our farmers will be affected or not.”
Habitan said that while the government was going toward a unitary rate, this would not happen on the first year of implementation of the tax-reform law. She said the P60 billion, or P55 billion, refers only to the impact on the first year of tax reform. The single tier will happen by 2014.
Under the DOF reform proposal, the estimated total incremental revenues from cigarettes, distilled spirits and fermented liquor is P60.7 billion for the first year, P84.3 billion for the second year, P118.4 billion for the third year, P128.5 billion for the fourth year and P139.3 billion for the fifth year.
