FEB.

2, 2012 DATE

NR # 2667B
REF. NO.

House leader sponsors Palace version of sin tax reform bill

The Palace version of the sin tax reform proposal was formally filed in Congress through House Bill 5727 authored by Rep. Joseph Emilio Abaya (1st District, Cavite) which seeks to change the current multi-rate specific structure of the excise tax on tobacco and alcohol products by adopting a unitary rate. The bill had already been referred to the House Committee on Ways and Means chaired by Rep. Isidro Ungab (3rd District, Davao City) which is set to discuss it along with the substitute bill for 10 other sin tax reform bills. Abaya said the filing of HB 5727 was made not only out of the desire to generate more revenues but its design is also ripe for a major overhaul to make the excise tax structure on tobacco and alcohol products simple, fair and responsive to the objectives of the government. Abaya, Chairman of the Committee on Appropriations, cited the existing revenue base of the government is limited in its capacity to provide substantial revenues to meet the growing pressure on government financial resources. The countrys deficit fiscal position is exposed to the possibility of further deterioration. To borrow more to finance the deficit is a luxury the government cannot afford much longer. This is not to mention that rising deficit can result in a downgrade in the countrys credit rating that would make borrowing an expensive option. Borrowing will only lead to heightened fiscal risks. The country needs to rely more on its own resources. The bill aims to enhance the revenue-generating potential of the tax system by proposing to restructure the excise taxes on alcohol and tobacco products, he said. He said they remain committed to keep the specific form of excise taxation of alcohol and tobacco products because it is easier to administer and it internalizes the negative externalities of alcohol drinking and tobacco smoking. The proposal seeks to shift to a much simpler structure by adopting a unitary rate which would address problems attendant to the current multi-rate specific structure of the excise tax like unfair tax treatment between and among tobacco and alcohol products according to him. A unitary rate will lend the tax structure more revenue-productive since it will avoid the shifting of demand to the least-taxed brand of tobacco and alcohol products. The bill approaches the reform in a more pragmatic manner by proposing to unify the excise tax rates in phases in aspects where a one-time unification proves too abrupt, he said. The bill proposes a three-year transition period in unifying the tax rates on cigarettes and distilled spirits. The tax structure for fermented liquor will be immediately unified on the first year of the reform. Abaya said an essential feature of the bill is the automatic adjustment of the tax rates using the relevant National Statistics Office (NSO)-established tobacco and alcohol indexes. The adjustment will allow the specific rates to track inflation, thus, maintaining the buoyancy of the revenues from this source according to him. He said the proposal is expected to yield additional revenues of P60 billion for the government. The bill provides for the continued sharing by tobacco farmers from incremental revenues but for purposes different from the existing intentions. More importantly, however, the bill proposes to direct incremental revenues towards augmenting the funds for the universal health care program of the government. Abaya stressed cooperation from Congress has always been critical in moving the countrys development agenda forward. In this period of even more uncertainty brought by globalized economies as well as the evolving fiscal challenges such as energy and environment-related concerns, he said working together becomes even more imperative. This bill is the authors humble contribution to this call for cooperation, he said. Section 1 of HB 5727 provides that on distilled spirits there shall be collected, subject to the provisions of Section 133 of the NIRC, excise taxes in accordance with alcohol content. For 45 percent by volume and less, by January 1, 2012, P42.00 per proof liter; and January 1, 2014, P150.00 per proof liter. Provided that on the fourth year and every year, thereafter, the excise tax rates prescribed shall be adjusted to its present value using an appropriate price index for alcoholic drinks, as published by the NSO. For more than 45 percent alcohol by volume, by January 1, 2012, P317.45 per proof liter; January 1, 2013, P233.73

FEB. 2, 2012 DATE

NR # 2667B
REF. NO.

per proof liter; and January 1, 2014, P150.00 per proof liter; provided that on the fourth year and every year thereafter, the excise tax rates prescribed shall be adjusted to the present value using an appropriate price index for alcoholic drinks, as published by the NSO. Section 2 provides that on wines, there shall be collected per liter of volume capacity, the following tax rates effective January 1, 2012. For sparkling wines/champagnes regardless of proof, P300.00; and still wines regardless of proof, P50.00; provided that every year thereafter, the excise tax rates prescribed shall be adjusted to present value using an appropriate price index for alcoholic drinks as published by the NSO. Fortified wines containing more than 25 percent of alcohol by volume shall be taxed as distilled spirits. Fortified wines shall mean natural wines to which distilled spirits are added to increase their alcohol strength. Section 3 of the bill provides that on fermented liquor, there shall be levied, assessed and collected on beer, lager beer, ale, porter and other fermented liquors except tuba, basi, tapuy and similar fermented liquors an excise tax equivalent to P25.00 per liter effective January 1, 2012; provided that every year thereafter, the excise tax rate prescribed shall be adjusted to present value using an appropriate price index for alcoholic drinks as published by the NSO. Section 4 provides that on tobacco products, there shall be collected a tax of P2.50 on each kilogram of the following products of tobacco: Tobacco twisted by hand or reduced into a condition to be consumed in any manner other than the ordinary mode of drying and curing; Tobacco prepared or partially prepared with or without the use of any machine or instruments or without being pressed or sweetened except as otherwise provided; and Fine-cut shorts and refuse, scraps clippings, cutting, stems and sweepings of tobacco except as otherwise provided. On tobacco specially prepared for chewing so as to be unsuitable for use in any other manner, effective January 1, 2012, on each kilogram, P1.87. Provided that on January 1, 2013 and every year thereafter, the excise tax rates prescribed shall be adjusted annually to their present value using an appropriate price index for tobacco products as published by the NSO. Section 5 provides that on cigars and cigarettes, there shall be levied, assessed and collected a tax of P200.00 per cigar; provided that on January 1, 2013 and every year thereafter, the excise tax rate prescribed shall be adjusted annually to its present value using an appropriate price index as published by the NSO. On cigarettes packed by hand, the tax rates shall be: Effective January 1, 2012, P14.00 per pack; Effective January 1, 2013, P22.00 per pack; and Effective January 1, 2014, P30.00 per pack. Provided that on January 1, 2015 and every year thereafter, the excise tax rate prescribed shall be adjusted annually to its present value using an appropriate price index for tobacco products as published by the NSO. On Cigarettes packed by machine, the tax rates effective January 1, 2012 shall be: P14.00 per pack if the net retail price is P10.00 and below per pack; and P30.00 per pack if the net retail price is more than P10.00 per pack. Effective January 1, 2013, the tax rates shall be: P22 per pack if the net retail price is P10.00 and below per pack; and P30.00 per pack if the net retail price is more than P10.00 per pack. Effective January 1, 2014, the tax shall be P30.00 per pack; provided that on January 1, 2015 and every year thereafter, the prescribed excise tax rate shall be adjusted annually to its present value using an appropriate price index for tobacco products as published by the NSO. Section 7 provides that 15 percent of the incremental revenue collected from the excise tax on tobacco products under RA 8240 shall be allocated and divided among the provinces producing burley and native tobacco in accordance with the volume of tobacco leaf production. The fund shall be utilized for programs to promote economically viable alternatives for tobacco farmers and workers such as: Programs that will provide inputs, training and other support for tobacco farmers who shift to production of agricultural products other than tobacco; Programs that will provide financial support for tobacco farmers who are displaced or who cease to produce tobacco voluntarily; and Cooperative Programs to assist tobacco farmers in planting alternative crops or implementing other livelihood projects. A portion of the incremental revenues shall be allocated to finance the Universal Health Care Program, the amount of which shall be computed based on the annual requirement of the said program as determined by the Department of Health. (30) rbb