Unitary cigarette tax seen to level playing field

The ongoing implementation of the single excise tax rate on cigarettes would be effective in combating not only smoking but also tax evasion among tobacco firms, according to state-run think tank National Tax Research Center (NTRC).

According to NTRC Executive Director Trinidad Rodriguez, the unitary system would “minimize opportunities to misdeclare or under-declare cigarettes for tax purposes.”

Rodriguez said that since tax administration would be simplified under a unitary tax rate, the government would have less difficulty in tracking and preventing attempts to smuggle, misdeclare or under-declare cigarette products.

“The unitary tax will level the playing field in the cigarette industry and promote competition. This will minimize incentives for cigarette manufacturers and importers to under-invoice their products for tax purposes,” the NTRC head also said during a recent House ways and means committee hearing.

“Also, reverting to a two-tier tax system on cigarettes would be going against the Asean trend as majority of its members have already adopted or shifted to a unitary rate,” Rodriguez said, citing that a similar tax regime was being implemented in Cambodia, Laos, Malaysia, Burma (Myanmar), Singapore, Thailand and Vietnam.

For its part, the Bureau of Internal Revenue (BIR) was of the position that “the two-tier tax system imposed in the last four years was only transitory as a consideration to the industry when they transition to the unitary rate.”

“The unitary rate allows for a simpler administration of taxation for cigarette products and resolves the issue of downgrading and the classification of the cigarette products,” BIR representative Nina Asuncion said during a recent House hearing.

Last December, Finance Secretary Carlos G. Dominguez III said the existing Sin Tax Reform Law first needed to undergo a review before deciding whether or not to continue with the unitary rate that took effect on Jan. 1 in the succeeding years.

Dominguez had said that the current sin tax legislation augured well with President Duterte’s intention of reducing the number of smokers in the country, as he had spearheaded when still mayor of Davao City where there are ordinances banning smoking in public places.

According to Dominguez, the President was aware of the progress of House Bill No. 4144, aimed at keeping the two-tier excise tax structure in 2017 instead of the single rate mandated under Republic Act No. 10351.

While Dominguez had said that he could not say what President Duterte’s stand was on the tobacco excise tax issue, the Finance chief noted the President’s anti-cigarette smoking stance.

“The goal of this sin tax is not to raise revenues; it’s to stop smoking. It’s a health measure—that’s the whole point. What did the President do as mayor in Davao City? So you can assume what his general tendency would be—he doesn’t like smoking,” Dominguez had said.

For Dominguez, RA 10351 was a “pretty good” law. “I’ve always worked on the principle of, ‘if it ain’t broke, don’t fix it.’”

HB 4144 authored by ABS Partylist Rep. Eugene Michael B. de Vera was passed by the House of Representatives on third and final reading before Congress went on Christmas break. The Senate ways and means committee already received the transmitted copy of HB 4144, hence could tackle the measure early this year.

Dominguez had said that if ever HB 4144 would get passed this year, it might be difficult for tax authorities to implement it as such would entail changing rules midstream. “It will go into unitary by law. So what do they want us to do? Go back to dual again [midstream]? We have to discuss that because the tax administration is quite difficult.”

HB 4144 was proposing that the two-tier system be maintained by slapping an excise tax rate of P32 a pack on cigarettes 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.

However, under RA 10351 or the Sin Tax Reform Law, tobacco products will be slapped a unitary rate of P30 a pack starting Jan. 1 this year, following a two-tier system last year wherein cigarettes priced P11.50 a pack were taxed P25 while those priced higher were slapped P29 a pack.

Industry and government sources earlier claimed that HB 4144, which was being backed by homegrown low-priced cigarette manufacturer Mighty Corp., was railroaded in the Lower House. It was filed only on Oct. 19 last year and had undergone only two hearings at the committee level, the first one last Nov. 28. After it was approved by the House ways and means committee without amendment on Dec. 5, HB 4144 was already tackled in the plenary the next day as the bill was also adopted as the committee report submitted to the committee on rules. —BEN O. DE VERA