P40/pack tax on cigarettes eyed

The Department of Finance is planning to increase to P40 per pack the excise tax to be slapped on cigarettes in 2018 under a unitary system mandated by the Sin Tax Reform Law.

Finance Undersecretary Bayani Agabin told the House ways and means committee last Monday that while the DOF was still studying the final rate they would propose to be implemented beyond 2017 when Republic Act No. 10351 matures, it would likely be higher than the 4-percent annual increment under the law.

If RA 10351 was to be followed, the uniform excise tax for 2018 should have been P31.20 per pack, following the shift to a unitary system that will slap excise tax of P30 a pack next year.

The unitary rate will be applied in 2018 following a two-tiered system this year under which cigarettes priced P11.50 per pack were being taxed P25 while those priced higher were slapped P29 per pack.

Finance Undersecretary Karl Kendrick T. Chua earlier said 4-percent annual increment was deemed “too low, given the excise burden.”

This move, however, might be sidetracked if House Bill No. 4144, which the House ways and means committee allegedly railroaded and passed also on Monday, prospers in Congress and eventually signed into law.

HB 4144 was proposing that the two-tiered system be maintained by slapping an excise tax rate of P32 per pack on cigarette packs priced P11.50 and below and P36 for those priced higher. It also proposed an annual 5-percent increase in the excise tax beginning 2018.

In a separate investor conference call yesterday, Chua said the adjustment in “sin” taxes, alongside slapping additional levy on sugar-sweetened beverages, would be pitched by the DOF following the passage of the first package of tax policy reform program, a bill for which is now pending in Congress.

Chua said the DOF was optimistic that the bill would be passed within the first half of 2017 so that it could be implemented in 2018.

The first of the six tax policy packages would adjust tax brackets to correct “income creeping”; reduce the maximum personal income tax rate to 25 percent over time, save for the “ultra-rich” who would be slapped a higher 35 percent, and shift to a simpler modified gross system.

As lower personal income taxes would result into foregone revenues estimated at P127.4 billion by 2018, the DOF plans to offset and gain P301.6 billion by expanding the VAT base by limiting exemptions to raw food, education and health products and services; increasing the excise slapped on all oil products and indexing them to inflation and jacking up the excise tax on automobiles.

The government stands to generate a net revenue gain of P174.2 billion from the first package by 2018.

The first package would also include tax administration reform measures, including legislation to relax the bank secrecy laws for tax fraud cases as well as including tax evasion as a predicate crime to money laundering.