The Department of Finance (DOF) wants to further raise the levy on so-called “sin” products, especially tobacco, as part of its proposed tax policy reform program aimed at generating more revenue to fund poverty-reduction programs.
“Once the current law reaches maturity next year, we’re proposing to adjust rates,” Finance Undersecretary and chief economist Karl Kendrick T. Chua told a House ways and means committee hearing on Tuesday, referring to Republic Act No. 10351 or the Sin Tax Reform Law.
Last week, the Presidential Legislative Liaison Office said that among the proposed priority bills being pushed by the DOF was an “adjustment in sin tax.”
Chua said the adjustment in sin tax rates would result in additional revenue of P22 billion in 2018 and would more than double to P46 billion by 2019, adding that the proposed rate hikes will be phased-in.
An earlier draft of the DOF’s proposed tax policy reform package to be pitched to Congress before this month ends showed that the adjustment on alcohol and tobacco tax was expected to generate P58.2 billion in revenue by 2019.
Under RA 10351, sin tax rates are supposed to rise by an increment of 4 percent yearly starting 2018, following the implementation of unitary rates next year.
But in an interview, Chua said the 4-percent annual increment was deemed “too low, given the excise burden.”
“Sin tax is a very effective health measure. But tobacco prices in the Philippines are still low compared with those in other countries. For instance, cigarettes in Singapore are 10 times more expensive. We think that for it to be a really effective health measure, we should increase excise taxes. Otherwise, we’ll continue to have health risks,” Chua said.
Another source said that in the case of tobacco products, from the uniform excise tax of P30 per pack in 2017, the government was planning to slap a higher P37 a pack by 2018, as recommended by the World Health Organization, instead of about P31.2 per pack.
Chua said a new bill or another amendment to the National Internal Revenue Code or the Tax Code similar to RA 10351 would have to be passed to implement the higher tax rates.
The DOF was initially looking at including the sin tax rate adjustments in the first package of its proposed tax policy reform program so that rates could go up as early as the middle of 2017. It, however, decided to let RA 10351 mature before implementing higher rates in 2018, Chua said.
Chua told the House ways and means committee that the tax policy reform program would help the country lift about 10 million Filipinos from poverty and become an upper middle income country by 2022.
Comprehensive tax reform will also augment the about P1 trillion in investments needed to ultimately make the Philippines a high income country in one generation or by 2040, Chua added.
A draft of the tax policy reform program showed that program’s first package, aimed for passage early next year and be implemented by mid-2017, would adjust personal income tax brackets to correct so-called income creeping; reduce the personal income tax maximum rate over time to 25 percent from 32 percent at present, except for highest income earners; and shift to a simpler, modified gross system.
To compensate for the foregone revenues from lower personal income tax take estimated at P159 billion, the Duterte administration wanted to expand the value-added tax (VAT) base by limiting exemptions to raw food as well as other necessities such as education and health; increase the excise tax on petroleum products and index it to inflation; levy a P5 per kilo tax on sugary products (domestic raw sugar, refined sugar as well as imported sugar and sugar substitutes); relax bank secrecy for fraud cases; and include tax evasion as a predicate crime to money laundering.
In terms of revenue impact, the first package will yield a net gain of P200.7 billion, as the loss from reforming the personal income tax system will be compensated by gains of P163.4 billion from VAT base expansion, P178.2 billion from higher oil excise tax, and P18.1 billion from sugary product tax.