2-tier cigarette tax against antitrust law

Reverting to the two-tier cigarette excise tax system would violate the country’s antitrust law, according to domestic manufacturers.

“Imposing two tax rates on cigarettes is creating market segmentation that favors manufacturers that sell cheaper brands and are subject to lower taxes. It’s against the competition law. If you are going to have a bigger market share, it should stem from fair competition in the market and not because the tax system is favoring you,” Federation of Philippine Industries (FPI) chair Jesus L. Arranza said in a statement.

“Once House Bill (HB) No. 4144 is passed in the Senate and becomes a law, I will file a case because that’s anticompetitive behavior,” Arranza added, referring to the measure aimed at keeping the two-tier excise tax structure in 2017 instead of the single rate mandated under Republic Act (RA) No. 10351. HB 4144 was railroaded in the Lower House before it went on Christmas break and had been transmitted to the Senate ways and means committee.

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

But under RA 10351, tobacco products were slapped a unitary rate of P30 a pack starting Jan. 1 this year, following the lapse of 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.

Arranza said enacting HB 4144 into law would be a violation of RA 10667 or the Philippine Competition Act, the first antitrust legislation in the country.

“HB 4144 came at a time when the objectives of RA 10351—promote health by discouraging smoking and funding the government’s universal health care program as well as finance livelihood and other projects that will benefit tobacco farmers—are being achieved. Based on reports from the Bureau of Internal Revenue and the Department of Health, the government is achieving the objectives of RA 10351. The law will even be more effective with a single tax rate as tax collections will go up because there will be less room to avoid paying taxes, and at the same time, there is a higher probability that the number of smokers will go down further,” Arranza said.

“It is ironic that the same Congress that passed RA 10351 are the same ones who are pushing for the retention of a two-tier tax system,” he added.

According to Arranza, “if lawmakers are serious in helping tobacco farmers, they should pass laws that will help elevate the quality of their produce so that they could compete even in the world market.”

Also, Arranza highlighted the hasty passage of HB 4144, which was approved just two months after it was filed in October last year. “We in the business community were surprised with the passage of HB 4144 because in the last three years, we did not hear any complaints against RA 10351. Then all of a sudden, HB 4144 was approved in the Lower House,” he said.

HB 4144 was being backed by homegrown cheap cigarette manufacturer Mighty Corp.

Meantime, the Department of Agriculture is also in favor of a unitary tax system for tobacco products instead of the two-tier scheme that has gained ground at the House of Representatives.

“The DA supports the position of the tobacco farmers,” Agriculture Secretary Emmanuel F. Piñol told reporters. This is in agreement with the position taken by the Department of Finance, a coalition of tobacco farmers groups as well as local and foreign business chambers.

Last month, the Philippine Business Group and Joint Foreign Chambers (JFC) said in a statement the original objectives of RA 10351 was to enhance the government’s health goals and strengthen its tax administration efforts.

“Since the adjustment of excise tax rates for ‘sin’ products in 2013, together with other reforms (under the law), we have noted the reduction of smoking prevalence and the significant increase in government revenues, which have supported various health projects and farmers’ livelihood programs,” the allied groups said in a statement.

“The lack of proper consultation with stakeholders, including the local tobacco farmers themselves, and the absence of an impact assessment study validating the need for such amendments leave much room for concern and doubt,” the business chamber said.

The business groups called on lawmakers “to allow the sin tax law to run its course.”