As an advocate for the cause of consumers and local industries, I am humbled – although perplexed – at a full-page advertorial of Mighty Corp. Executive Vice President and Spokesman Retired Judge Oscar Barrientos refuting my earlier statement that a two-tier cigarette tax is against the Anti-Trust Law, saying that my position on the proposed two-tier cigarette tax is without basis.
As a backgrounder on Judge Barrientos’s refutation, and with all due respect to his interpretation of the Anti-Trust Law, he cited the following anti-competitive behaviors as provided for in Republic Act No. 10667, more commonly known as the Philippine Competition Law:
(a) The following agreements, between or among competitors, are per se prohibited:
- Restricting competition as to price, or components thereof, or other terms of trade:
- Fixing price at an auction or in any form of bidding including cover bidding, bid suppression, bid rotation and market allocation and other analogous practices of bid manipulation:
(b) The following agreements, between or among competitors which have the object or effect of substantially preventing, restricting or lessening competition shall be prohibited:
- Setting, limiting, or controlling production, markets, technical developments, or investments:
- Dividing or sharing the market, whether by volume of sales or purchases, territory, type of goods or services, buyers or sellers or any other means:
(c) Agreements other than those specified in (a) and (b) of this section which have the object or effect of substantially preventing, restricting or lessening competition shall also be prohibited: Provided, those which contribute to improving the production or distribution of goods and services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits, may not necessarily be deemed a violation of this Act.
While we have the courts to decide on the merits of the issue on cigarette taxation, should it reach that level, and of course, the Supreme Court, as the final interpreter of the law, let me, however, share my thoughts and own understanding of the Philippine Competition Law, where my position that a two-tier cigarette tax would violate the anti-trust law is based.
On Item 1 under (a) of the above mentioned restrictions, it says that restricting competition as to price, or components thereof, or other terms of trade violates the Philippine Competition Law. As a consumer and industry advocate, former president and Chief Executive Officer of the government sequestered CIIF-Oil Mills and as bank director, I am very particular about costs as the sum of all its components determine the final cost of finished products, and ultimately its selling price. In simple terms, if tax is not a cost component, then it should not affect the selling price of products. But tax, whether its a pass on cost or a production cost component, affects the selling price of products. Thus, a two-tiered tax on cigarettes would result in market segmentation of lower taxed and lower priced cigarettes and higher taxed and higher priced cigarettes.
Moreover, Item (c) of the above mentioned restrictions in the Philippine Competition Law is virtually the catch-all provision. It states that all agreements other than those specified in (a) and (b) which have the object or effect of restricting or lessening competition shall also be prohibited. A tax, although it may be contested, is actually an agreed amount of money between the government and taxpayer which the latter has to pay for earning money out of business or for doing services among others.
Thus, the law would not say that imposing tax on cigarette is prohibited and restrictive, as it needs revenues to run its huge machinery. The objective of collecting taxes from cigarettes, after all, is very important for the nation’s economy. However, its results, should the two-tier tax on cigarettes be imposed, would lessen competition as market forces could polarize to the lower taxed and cheaper cigarette brands. In short, while the objective of taxation is noble and essential, its result, under a two-tiered tax system, would restrict competition.
Anyway, let me leave the issue on cigarette taxation to the tax experts, and of course the courts, particularly the Supreme Court, if only to determine whether tax is a cost component in the computation for the selling price of cigarettes.
But the government had other concerns aside from raising revenues, when it supported the Sin Tax law particularly the single-tier tax for cigarettes. Secondary to revenue collection, the government also wanted to address the health risks of smoking, especially among the youth and the poor. And under the two-tier tax system, health advocates worry that it will only encourage these type smokers to shift to the lower taxed and cheaper cigarette brands. The government will not allow the youth and the poor to die of smoking related illnesses simply because they had a choice for lower priced cigarettes. This contravenes the purpose of the Sin Tax Law to discourage smoking among others.
Moreover, the two-tiered cigarette tax can also be exploited by some unscrupulous traders and manufacturers through misdeclaration, and/or under-valuation, including the other forms of illicit trade. This could result in higher revenue losses for the government, contravening, instead, the government’s purpose of raising more revenues from the Sin Tax law.
I hope this clarifies further my stand on the cigarette-tax debate.
1 comment
Jesus Lim Arranza, President of FEDERATION of PAYING INDUSTRIES. Pag hindi ka nagbabayad sa “FPI” niya, syempre sisibakin ka. Halata ka naman. Keep bending over for the White race sir! Keep it up.