Debate on ‘sin’ tax expected to heat up in Senate

Local tobacco giant PMFTC expects arguments against reforms on the excise tax regime to “resonate in the Senate” as the chamber tackles a proposed law that would raise levies on so-called “sin” products.

PMFTC president Chris Nelson said in an interview that there are “a number” of senators who might take a similar position as that of the company, which is Philip Morris Manufacturing Philippine Inc. and Fortune Tobacco Corp. combined.

“We’ve got a number of senators and also quite a few congressmen (who agree) that the industry has a very valid point in opposing House Bill No. 5727,” Nelson said.

“Take the matter of dramatic tax increases that the bill would result in if it becomes law,” he added. “It negatively impacts on the entire domestic manufacturing industry.”

He said that the proposed law, in its present form, would result in the excise tax on tobacco products ballooning by eight times in the first two years of implementation.

“We can’t find any other country in the world where this has happened,” Nelson said. “In a best-case scenario, this would diminish industry revenues by 26 percent.”

The PMFTC chief added that such scenario does not take into account the increase in smuggling activities and counterfeiting that a significant increase in taxes would cause.

Nelson reiterates that the expected contraction in the legitimate domestic industry will affect some 2.9 million people who are directly and indirectly employed in the sector, citing data from the Philippine Tobacco Administration.

He lamented the bias of HB 5727 against tobacco as opposed to alcohol products – referring to the version that the House of Representatives approved and presented to the Senate.

Originally, state economic managers expected the proposed law to yield P60 billion in tax revenues during the first year of implementation alone.

Nelson noted that based on Malacañang’s computation, P30 billion would come from tobacco, P20 billion from beer and P10 billion from distilled spirits.

“With the version that passed the House, they now expect some P32 billion – P27 billion from tobacco, P3 billion from beer and the rest from distilled spirits,” he said. “It used to be 50-50, but now tobacco represents 85 percent of projected revenues.”

“In the first two years, the bill would mean a 700-percent increase in taxes on tobacco but for beer it’s 32 percent,” he added.

But Nelson said that at least for Philip Morris, the company is committed to continue doing business in the Philippines despite recent developments in Congress.

“We’ve been here since 1955 and, since 2003, we have invested a total of $400 million,” he said. “We’re staying but obviously we have to consider our options.”

“We will try to maintain our market share [of about 90 percent], but we have to be realistic about what the market could take by then,” he added.