Imee sees rough sailing for second tax reform package seeking more taxes on tobacco

MANILA, Philippines—The chair of the Senate economic affairs committee had expressed doubt the second package of the Duterte administration’s tax reform would be passed within the timetable set by government finance officials.

Sen. Imee Marcos, daughter of the late dictator Ferdinand Marcos, said she didn’t believe the second package of tax reform would pass within 15-18 months even if she supported its proposal to further increase taxes on so-called “sin” products, like tobacco, a major crop grown in her home province Ilocos Norte.

“It’s a very, very tight schedule,” said Marcos. “These are very complicated and very controversial measures. If it’s tax, it’s really bloody but let’s see,” she said.

Finance Secretary Carlos Dominguez was right in trying to insulate tax reform from politics, said Marcos, because the proposed measure was highly controversial.

Marcos, after a Department of Finance briefing on two more tax reform packages last week, said one of the controversial provisions of the second tax package was its plan to bring order to tax incentives. Marcos said there was opposition to that provision because of fears it would scare off investors.

Last week, Sen. Pia Cayetano, chair of the Senate ways and means committee, told the Inquirer that the Senate was “ready” to heed Dominguez’s call to pass the pending tax packages before legislators get busy preparing for the 2022 national elections.

Marcos, however, said Cayetano spoke too soon. “It’s really difficult,” she said.

Marcos said package 3, which reforms property valuation system, “looks good.” Package 4 on passive income and finance taxes, Marcos said passage was a ‘struggle” because of its effects on the stock market.

Marcos said she would need more convincing to support a spinoff of package 2, which seeks to further increase excise on alcoholic drinks, e-cigarettes and cigarettes.

“We really feel that tobacco is being beaten up,” she said. “Why are we being beaten up time and again?”

She said while tobacco products had gone through several tax increases, alcoholic products have been spared. “It’s entirely unreasonable,” she said.

Marcos added that while it was time to harmonize taxes, the Duterte administration was “getting a lot of skewing” because treatment of products for taxation was “not equal.”

Under Republic Act (RA) No. 11346 signed by Duterte in July, excise on cigarettes will increase from P35 per pack at present to P45 a pack in 2020; P50 in 2021; P55 in 2022; and P60 in 2023, to be followed by 5-percent yearly tax increases starting in 2024.

Heated tobacco products will be levied excise of P10 a pack starting Jan. 1, 2020, to be followed by yearly hikes of 5 percent starting 2021.

Vape cartridges, refills, pods or containers of their liquid solutions will be slapped a tax of P10 per 10 mL.

The tax rate for e-cigarettes, however, was not satisfactory for Dominguez, who considered it “too low.”

The DOF proposed to levy heated tobacco the same excise rates for regular cigarettes starting in 2020. The department wanted a tax of P45 per mL for vapes regardless of volume and P5 additional tax per pack per year.

The Department of Health has also been pushing for higher alcohol taxes.

In a proposal by the two departments, tax per liter of fermented liquor should be P40 starting in 2020, P45 in 2021, P50 in 2022, P55 in 2023 and 10 percent every year starting in 2024.

The DOF also wanted to apply the same tax rates on alcopops—flavored alcoholic drinks popular among the youth—to discourage consumption.

For distilled spirits, the joint DOF-DOH proposal was to raise the ad valorem tax to 25 percent next year from 20 percent at present, while also jacking up the specific tax per proof liter from P23.4 currently to P40 next year, P45 in 2021, P50 in 2022, P55 in 2023, and 10-percent indexation each year thereafter starting 2024.

Sparkling wines and champagnes will be slapped a specific tax of P348 (for P500 net retail price or less than 750-mL volume capacity) and P974 (for more than P500 per bottle of 750-mL volume) per liter next year, to be followed by 10-percent indexation every year from 2021 onwards.

In the case of still wines and carbonated wines, the proposal was to levy P42 per liter for those with 14-percent alcohol or less, and P84 for those with more than 14-percent alcohol content, after which a similar 10-percent yearly tax will be implemented beginning 2021.

The tax packages were expected to generate more than P390 billion every year for Universal Health Care funding./TSB