Group warns sin taxes to encourage smuggling, sees gov’t increasing income taxes

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A vendor sells cigarettes at a supermarket in Quezon City in this file photo. A proposed bill restructuring the excise tax on tobacco and alcohol products is seen to generate some P60 billion, according to President Benigno Aquino III, who is pushing for the passing of the sin tax reform bill. AFP/JAY DIRECTO

MANILA, Philippines—A group of businessmen and professionals has warned that the government would lose, instead of generate more, revenues if it implements the proposal to slap much higher taxes on cigarettes. In the end, government might resort to increasing income taxes, the group warned.

In a statement, the Caucus for Philippine Competitiveness (CPC) said a hike in cigarette taxes of as much as 1,000 percent, as proposed by some legislators, would cause a steep increase in prices of cigarettes produced by legitimate cigarette manufacturers and, therefore, would cause a shift in demand in favor of cheap and smuggled cigarettes.

CPC, a non-government organization focusing on economic advocacy, said government would lose a lot to cigarette smuggling. Legitimate businesses will suffer reduced sales, while smugglers who do not pay taxes will be the ones to enjoy higher sales. .

It said the promise of higher government revenues arising from the increase in cigarette or “sin” taxes would only hold true during the first year of implementation of the tax hike. Starting the second year, CPC warned, the decline in tax collection would be felt.

The goup said government might compensate for the lost revenues from cigarette taxes by increasing rates of other taxes, such as the income tax or impose new ones.

“If health and finance officials succeed with legislation of 1,000 percent hikes, sin tax revenues would contract by the second year of implementation like it did in Singapore,” said CPC chairperson Mike Lopez said in the statement.

“To make up for losses, government will be compelled to increase income taxes or impose new ones like the dreaded text tax on SMS messages, which Congress has time and again been eyeing,” Lopez added.

CPC released its statement amid pending proposal in Congress to impose much higher taxes on cigarettes.

The Department of Finance is pushing for the tax hike, a move that is believed to help the government generate much more revenues. The Department of Health is another advocate of the proposal, saying higher taxes would help reduce the number of smokers and thus the incidence of smoking-related deaths.

The push for higher taxes on cigarettes is being backed by the Asian Development Bank, which in a report cited the Philippines as one of the countries to suffer from the biggest numbers of smoking-related deaths if no government intervention on smoking trend is done.

In its report titled “Tobacco taxes: a win-win Measure for Fiscal Space and Health,” the ADB said the Philippines, together with China, India, Thailand, and Vietnam, are seen to eventually register 267 million smoking-related deaths over the short to long term if current smoking trends continue.

It also said governments of the five countries could benefit from higher revenues if they imposed higher cigarette taxes.

ADB said a 70- to 122-percent increase in cigarette taxes in the five countries, which would result in a 50-percent increase in cigarette prices, would cut the number of smokers by 67 million and reduce smoking-related deaths by more than 27 million.

In addition, the five countries would be able to generate $24 billion in additional revenues a year. ADB said such an amount would represent a 143- to 178-percent increase in revenues generated by the governments of the said countries from cigarette taxes.

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  • My mom

    ON Monday, November 19th, the Philippine Senate is expected to be railroaded by Malacanang into approving the Excise Tax Reform Law based on bloated DOF statistics. Next year, some cigarette factories will close shop. All makers of budget cigarettes will be wiped out over the next 2-3 years. The workers and their families will walk the streets jobless. Throughout, Ilocanos will experience the scourge of tobacco leaf oversupply. Not a few will starve. Sin tax hauls will be bright in Year One but will contract inexorably starting Year Two. By then the Universal Health Care program will eat crow as bloated DOF statistics begin rip at the seams. The 15 percent safety net for tobacco farmers will consist of one big hole. The poor will be a horde of sickos. Meanwhile, Filipino smokers will be lighting up cigarettes imported legally and illegally, worsening the unprecedented record for smuggling of the PNoy administration. To compensate for losses, the IMF is already recommending the imposition of text taxes. Increases in income taxes will come later as smokers and non-smokers alike are forced to pay for excise tax losses. That excise tax was once the only performing tax category of government will be but a fond memory. All tax categories – EVAT, Income Tax, and Excise Tax – will be abject under-performers. What mess from the president who was elected by promising no new taxes in his incumbency!

    • Handiong

      Scare-tactics by the tobacco industry.

      • My mom

        OH yeah? I am not a part of the tobacco industry. But I say so. Sen. Marcos has given details of bloated DOF statistics that will make sin tax hauls a great big pie in the sky. Please propound the matter instead of dismissing it because it simply won’t go away. The scare is real and not a tactic.

      • Handiong

        Oh, since it’s your say-so, everybody should believe? Who the h*ll are you, anyway? Sen. Marcos should be the last person to be believed when it comes to this issue. Lucio Tan was his father’s dummy at Fortune Tobacco.

      • My mom

        NO one can make anyone else believe. That’s a choice for readers alone to make. You only seem to be enlarging my base of readers, thank you. Incidentally, my real name is Handiong. But you can’t be my mom, I know her. LOL!

      • My mom

        IT does not matter who speaks. Facts, of which you have nothing, speak for themselves. To reach a fantastic P40 billion revenue projection, Sen. Drilon used five percent GDP rate growths instead of actual cigarette industry growth rates (removals), which is less than two percent per annum. The scandal hits the fan when government ends up taxing half-fictitious cigarette volumes. Government collects the hot air of Sen. Drilon.
        Sen. Marcos, no matter whose son he is, invokes not his own data but that of the senate tax statistics office.
        Guess what happens when Sin Tax projections are entered into the National Budget? It’s going to be a mess.

  • Bianca Evans

    reduce death….? hmmmm… will that be beneficial to the Philippines? just think about it. 

    Think about who will be affected… I think keeping the prices on tobacco products low will make it more favorable for more people in the long run.

    Population control is always good… and… RH bill FTW.

  • My mom

    THE cost to manufacture any counterfeit pack of cigarettes in China is a little over PhP8.00. Projected cost of local cigarettes when the proposed sin tax reform law is approved is PhP50 to PhP150. The cost difference justifies smuggling particularly to the Philippines where the coastline is porous and even longer than that of the US mainland, the Coastguard is ill-equipped, and the Customs bureau allows smuggling at a rate estimated by the IMF as overshadowing all of three previous administrations combined. The proposed sin tax reform law does not have safety nets for smuggling. None at all. It is sure to fail. It is sure to mess up the Philippine excise system, the only performing tax category of government.

    • Handiong

      Nothing justifies smuggling. It’s a crime. Smuggling is for the Bureau of Customs to deal with. The possibility that cigarettes may be smuggled cannot be the basis for crafting tax policy.

      Reforming the tobacco tax structure will not mess up the entire excise tax system. Taxes on tobacco will not affect the taxes on other goods and services.

      • My mom

        WHAT wonderful logic if you were an eight-year-old boy! You push a bill that will aggravate the Aquino regime’s smuggling record and say, in the same breath, that it “is for the Bureau of Customs to deal with.” And, given the bloated statistics that went into the projections of the sin tax bill, where do you base the assertion that “reforming the tobacco tax structure will not mess up the entire excise tax system.” I know you hate being bothered by facts, but do enlighten us with the little you know.

  • Your_King

    Smuggling in the Philippines has been that worst during Aquino’s term than during his predecessors…So are you telling us that the sin taxes will just make things even more worst? Worser? Worsest? In other words, pretty much not good.

  • Handiong

    CPC chairperson Mike Lopez was being deceitful when he said that “sin tax revenues would contract by the second year of implementation like it did in Singapore.” The implication is that tobacco tax revenue continuously decreased from then on. But, note the following tobacco tax revenue data for Singapore (in US Dollars):

    2005 – 510,093,057
    2006 – 444,366,500
    2007 – 501,073,729
    2008 – 568,002,863
    2009 – 666,857,552

    While the revenue decreased in 2006, it continued to go up from 2007 onward. I don’t have data for 2010 and 2011, but it is not hard to imagine that the revenue would continue to rise, considering that Singapore’s population (citizens + foreign residents) has been rising. ASEAN countries with tobacco tax rates higher than the Philippines, like Indonesia, Thailand, Singapore, Malaysia, and Vietnam have increasing tobacco tax revenues. Why should the Philippines be any different?

    The International Tobacco Growers Association (ITGA) has been agitating farmers with misinformation and outright lies. While ITGA claims to champion farmers’ rights, it actually fronts for the interests of big tobacco companies. With huge funding from the tobacco industry, I would not be surprised if CPC has been co-opted by ITGA.

    Let us remember that the sin tax bill does not only aim to increase revenue, but also to reduce the government’s costs for treating smoking-related illnesses. With increasing tobacco tax revenue and decreasing healthcare costs, the net effect should be more money for the government to spend for public services.

    • My mom

      YOUR numbers show that it took Singapore three years since 2005 to recover from the folly of steep hikes in tobacco taxes. You forget that their tax haul has been on a downtrend even before 2005. And the only reason why the tax haul has risen since 2008 is that Singapore stopped the policy of excessive excise tax increases.

      • Handiong

        Cite your sources and data for: (1) tax haul has been on a downtrend even before 2005 and (2) Singapore has stopped increasing excise tax increases.

      • My mom

        NOT making your job easy, Handiong. Go search and fill your brain with more wisdom. Or tell me I’m wrong and AMALAYER. Hehe.

      • Handiong

        You are entitled to your own opinion, but you are not entitled to your own facts. I have stated my facts. You have not controverted them with your own. Prove your case with evidence not just with your say-so. That’s the only intelligent thing to do.

      • My mom

        YOUR “facts” corroborate my claim that excessive tax hikes make the excise system shrink. Singapore had to live with the mess for three years, according to you.

      • My mom

        INCIDENTALLY, not only is the data you submit understated. It is also incomplete as it fails to stretch out to 2003, the year that Singapore first imposed excessive tobacco taxes. It was a slippery slope for the Singaporean excise system since. The rise you quote starting 2008-2009 don’t even match up to the 2002 base figure. Please refrain from spreading erroneous information in the net. Or is it just you, Handiong?

  • Maldi2

    Damage control mga comments ng mga clones ni Carandang dito….. bwehehehehe!  Aside from departing to their election promise that no new tax will be raised by Panot if elected, This sin tax is going to be the greatest SIN of Simeon for endorsing openly! Ika nga ng mga Arabo, MOK MAFI!  bwehehehehe!

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