Revised tobacco taxes: Bane or blessing?

(First of a series)

Asthma is no walk in the park. I’ve been having some very annoying asthma attacks over the past few months—no thanks to the ridiculously erratic weather and the countless smoke-befogged boardrooms and offices I’ve had to endure lately. And the doctor gave me a choice between the beach or my room. Since I dread the thought of fighting the traffic and enduring a long drive to a decent beach where I can have some peace and quiet, I’ve elected to stay home, crank up the air conditioner in my room, read old pocketbooks and watch some DVDs. There is something to be said for peaceful rooms free of noise, stress and, yes, cigarette smoke, the bane of every asthmatic’s existence.

All this talk about cigarette smoke, however, makes me think of the impending changes to the excise tax law on alcohol and tobacco products. Any time Congress makes changes to our tax laws, I get a little anxious, because I’m concerned about how those changes are going to influence everyday life—and I say this from the standpoint both of a tax practitioner and a Filipino citizen. Now, because the Pinoy likes to enjoy his beer and cigarettes, it’s not surprising that people are concerned about how the new excise tax provisions will affect the prices of a cold bottle of beer and a cigarette.

Experience tells us, though, that every change to the country’s tax laws has the potential to be a double-edged sword, and the only question is, which side of the sword will cut through Juan de la Cruz’s daily life? In the case of the excise tax on cigarettes, this is definitely a double-edged sword that will make Toledo sword makers sit up and take notice. So, let’s take a gander at each side of the blade, shall we?

I try to be a positive thinker, so let’s consider the advantages of raising the excise taxes on tobacco products. There are some very real benefits that may come about, and the first is that smokers just may cut down on their consumption of cigarettes. Higher taxes mean that it’ll cost more to light up, and less cigarettes sold will mean cleaner air for everyone. That just might translate into fewer days when my friends will come upon me wheezing like a car that badly needs a tuneup.

Still others will say that higher cigarette prices might discourage young people from acquiring the habit—it’s becoming a common sight to see teenagers smoking a stick or two outside school buildings, between their classes. Smoking, it seems, is “cool,” and it’s a rather disturbing truth that smokers are becoming younger and younger these days, raising the specter of an entire generation or two of Filipinos with crippling respiratory diseases.

As a father myself, I’m just glad my two children wouldn’t even come within a mile of a cigarette. Sadly, other parents aren’t as lucky as I am, and I’m sure that they’d welcome a rather sharp rise in cigarette prices in the hope that their children will be put off from spending so much on a stick of rolled-up leaves!

Now, the tax practitioner in me can understand why the government wants to raise the excise tax rates on tobacco and alcohol products, because it’s a fact that for many years now, cigarette companies haven’t had to address higher taxes. This is, either way you look at it, unfair to other industries that have seen higher tax rates over the passage of time, and it’s easy to see why the government has been working to remedy this situation.

Economic development is always best achieved when there’s a level playing field for all industries, and when every sector bears—as much as possible—an equal share of the responsibility to support national development.

Some cynics would say that the government is raising excise tax rates not so much to level the playing field, but to raise revenues from a particularly lucrative industrial sector—after all, millions of Pinoys can be seen puffing away in all kinds of places, from the street corner to the corner office.

But then, one can’t argue with the need to raise taxes which, as we all know, are absolutely necessary if we’re going to uphold such things as peace and order, health care, and so on.

Either way you look at it, you can’t run a government on a shoestring budget, or expect national development to come cheap. Everyone—the smokers included—has to pay his fair share of taxes, and invest in the future of the country.

I’m especially gratified by reports that there are plans to allocate excise tax revenues to healthcare programs, a particular sector of governance that I personally think needs to be funded as generously as possible.

All of these considerations are excellent reasons for an increase in the excise taxes on cigarettes. But like I said, raising tax rates can be a double-edged sword. And in the case of the excise tax on cigarettes, here’s the catch—if things go according to plan, the new excise tax rates will raise the taxes on tobacco products so dramatically that the price of cigarettes will surely hit stratospheric levels. And the cigarettes I’m referring to are not those fancy imported cigarettes, but the cigarettes that are locally produced by cigarette manufacturers who employ local labor and make use of local resources.

It doesn’t take a Stephen Hawking to realize that if the price of local cigarettes goes up faster than Iron Man at full throttle, there is bound to be an impact on the economy, and it will definitely not be a good one. The first casualty will be the tobacco industry itself—astronomical retail prices of locally manufactured cigarettes, which are by far the most popular and the most saleable cigarettes, may well mean not only a reduction, but a nose-dive in the sales of these cigarettes. And if that happens, then the government’s objective to raise revenues from the higher excise taxes will ultimately be defeated.

(To be concluded)

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is a senior partner of The Tax Offices of Romero, Aguilar & Associates and member of the MAP national issues committee and the MAP tax committee. Feedback at [email protected]. For previous articles, visit <map.org.ph>.)