Proposed ‘sin tax’ law to help Philippines, DoF says

The Department of Finance (DoF)-backed reform on the so-called sin taxes would raise the ratio of excise tax to retail prices of tobacco and alcohol to international levels, as recommended by the World Bank.

Finance Undersecretary Jeremiah N. Paul Jr. said Thursday in a statement that affected companies’ claims on the effects of the proposed law are “exaggerated” and “taken out of context.”

Earlier this week, PMFTC president Chris Nelson told reporters the bill would encourage illicit trade while “ravaging” legitimate business, noting that the DoF itself expects a 50-percent drop in industry revenues if the proposal becomes law.

House Bill No. 5727 calls for the pegging of retail prices to inflation and implementing a unified tax rate as opposed to the current multitier regime.

Citing a World Bank report titled “Sustaining Growth in Uncertain Times,” a quarterly update on the Philippines issued in December, Paul said Philippine excise taxes are far lower than those in other countries.

The bank’s 46-page report finds that “in a comparison of 15 countries, the Philippines’ rates appear in the lower half when comparing taxes as a share of retail prices (RSP).”

The World Bank attributes “the very low revenue yield from tobacco products” to low excise tax rates, which are not indexed to inflation, and the use of 1996 prices as bases for taxation of older products and current prices for newer products.

As of 2009, data provided in the study showed excise tax as a percentage of RSP of tobacco at 32.9 percent for the cheapest brands and 37.5 percent for both the most sold and premium brands.

In comparison, Thailand has 51.1 percent, 58.4 percent, and 61.6 percent, respectively, while Mexico has 48.6 percent across the board and Turkey has 64.1 percent, 58 percent, and 58 percent.

For liquor, the report also showed a relatively low excise tax-RSP ratio for the Philippines with 26.1 percent for beer, 5.5 percent for wine and 35.8 percent for distilled spirits.