DOF ‘strongly’ opposes House bid on two-tiered sin tax regime

5 December 2016:

The Department of Finance (DOF) said it is strongly opposing the House committee approved measure seeking to maintain the present two-tiered sin tax regime on tobacco products.

In a position paper submitted to the House of Representatives’ ways and means committee, the DOF said a two-tiered excise tax system on cigarettes will just widen the price gap among cigarette brands, which is not good for fiscal and public health.

The DOF also said a two-tired structure will just encourage smokers to buy low-priced brands instead of high-taxed cigarettes, hence will not discourage tobacco consumption.

Instead of the two-tiered taxation, the DOF wants to shift instead to a unitary system by 2017 as provided under Republic Act 10351, or the Sin Tax Reform law of 2012.

But despite the DOF opposition, the House committee on ways and means approved yesterday House Bill No. 4144 filed by ABS Partylist Representative Eugene Michael B. de Vera, which seeks to maintain the current two-tiered excise tax structure.

If implemented, the proposed bill will impose two different tax rates depending on the classification the cigarettes will fall under. The bill seeks to assess P32 against lower tier or cheaper cigarette products and P36 against premium or more expensive brands.

“More than a revenues measure, the Sin Tax Reform Law or RA 10351 is a health measure with a primary goal of curbing tobacco use in particular among young and the poor because of its known detrimental effects on health,” the DOF said.

“Thus, one of the key features of the law is the gradual shift to unitary taxation. A unitary rate by 2017 will further the gains of the law when it comes to its revenue and health objectives,” the department added.

The DOF further explained the ill effects of cigarettes to the general public, whether through first hand, second hand, or third hand smokings, are no way different between a low-priced and a high-priced brand.

“The tax as a payment for its negative externality should be the same for all brands regardless of price and form,” the DOF said. “Cigarettes should not be made affordable to the consumers through tax differentiation.”

The excise tax structure should not be used as a mechanism to allow cigarettes to become affordable to the public, particularly among the young and the poor, the DOF said.

Along with the DOF, Madeline Joy J. Aloria, Action for Economic Reform (AER) research associate also opposed HB 4144, saying a two-tiered regime would increase cigarette consumption by 50 percent due to “downshift” effects.

Aloria also said the proposed bill would result in lower tax collection by about P9 billion annually.

“In my preliminary calculation, the government could generate P9 billion more revenues when it’s unitary rate of P40 on all cigarette brands,” Aloria said.

The Action on Smoking and Health (ASH), meanwhile, hopes Congress will uphold its mandate to protect the health of all Filipinos.

“It is unfortunate that some members of the House of Representatives are undermining the Sin Tax Law this early when it is yet to be fully implemented next year. May the anti-health legislators not succeed in passing House Bill 4144 in the guise of protecting tobacco farmers,” ASH said.

Source: http://business.mb.com.ph/2016/12/05/dof-strongly-opposes-house-bid-on-two-tiered-sin-tax-regime/