The House of Representatives on Wednesday approved on second reading a measure that will impose two-tier tax rate for cigarettes.
House Bill 4144, principally authored by Rep. Eugene De Vera of ABS partylist, seeks to amend RA 10351, otherwise known as the “Sin tax Reform Act.”
Lawmakers approved the bill through viva voce Wednesday night.
Under the sin tax law, unitary tax of P30 will be imposed per cigarette pack regardless of the net retail price in 2017.
The proposed two-tier tax system seeks to impose a P32 tax-per-pack for tobacco products at or lower than P11.50 per pack, and a higher P36 tax-per-pack for products exceeding said amount per pack.
The bill added if the rates of tax imposed under the bill shall be increased by 5 percent every year thereafter effective on January 1, 2018 through revenue regulations issued by the secretary of Finance.
“In 2012 Congress passed RA 10351, otherwise known as the “Sin tax Reform Act” and it took effect on January 1, 2013. It introduced higher excise rates for alcohol and tobacco products, signaled the move towards a unitary rate system (a single excise rate) by the year 2017 ad indexed the tax rate to inflation by increasing it by 4 percent annually,” De Vera said.
Before the passage of this proposed law, the Philippine’s excise tax system on cigarettes packed by machines had four tier and in 2016 it gradually shifted to two tier as the sin tax law provides. On January 1, 2017, however, these two tiers, intended as a transitional measure shall eventually converge to a unitary rate of P30 per pack.
“With the uniform excise tax rate, consumers would prefer to buy high priced cigarettes because the price disparity between the high priced cigarettes would be minimal. Imbued by competition, cigarette manufactures may also opt to import tobacco leaves instead of purchasing the locally grown tobacco leaves considering that tobacco leaves grown abroad are of better quality, this diminishing the demand for tobacco leaves produced domestically especially for the lower grade tobacco types such as Grade D, E, F-1, F-2 and R. These lower classified leaves comprises of 20 percent to 30 percent of the leaves in one single stalk of cigarette,” De Vera said.
For his part, Ways and Means Chairman and Liberal Party Rep. Dakila Carlo Cua, who sponsored the bill, said the measure seeks to further the level the playing filed in the cigarette industry and promote competition among players.
Cua said the government could generate an additional P14 billion for the first year of the implementation.
Majority Leader Rodolfo Farinas of Ilocos Norte said the lower chamber is eyeing to pass the bill on third and final reading before Congress goes on break on December 14.
The bill was approved after two committee hearings and despite the strong opposition of the Department of Finance.
“Cigarette are all harmful regardless of their price and form. The principle behind unitary taxation for cigarette products is that the ills that these products cause to the general public, whether through first hand or second hand or third hand smoking, are no way different between a low priced- and a high-priced brand,” the DOF said.
Full implementation of sin tax law
Amid proposals to impose a fresh two-tier tax system on tobacco products, Akbayan Rep. Tom Villarin called instead for the full implementation of the Sin Tax Law of 2012, which will impose a P30 tax-per-pack under a unitary tax system for all tobacco products regardless of retail price in 2017.
“The law has worked out quite well for the past four years. Perhaps it would be better to see it through until the ongoing review is finished,” Villarin said.
“Besides, regardless of price, cigarettes pose equal health risks to smokers. No brand is less harmful. Therefore, why should we tax them differently?” he added.
Villarin said such system will pose a disadvantage to competitors of local tobacco brands, precisely because it encourages “downshifting” or shifting to cheaper brands, which happen to be the local ones.
“Are we trying to make local tobacco producers richer while encouraging more poor Filipinos to smoke?” he added.
According to Villarin, the Sin Tax Law of 2012 was designed precisely to generate enough revenue for universal healthcare, while gradually transitioning as a tool to encourage a healthier lifestyle for Filipinos by eventually discouraging smoking.
“According to the law, next year would be the first year we’ll see a unitary tax system for tobacco products at work. While revenue generation is important, encouraging a healthier lifestyle should still be a bigger goal,” he said.
“But if consumption stays the same, we could even increase the uniform tax rate on tobacco products in the future,” he added.
Projections show that given an inelastic demand for tobacco products, a P40 unitary tax can generate up to P142.69B, which is P20 billion higher than projected revenues under the proposed two-tier tax system, Villarin added.
“Higher revenues mean higher allocations for tobacco farmers. And if more of them are given access to education and training, they can be empowered and switch to producing healthier crops,” Villarin said.