Sin tax law may sway credit firms to upgrade PH

The enactment into law of the controversial “sin” tax bill may be all that is needed to persuade international rating agencies to immediately upgrade the Philippines’ credit standing to an investment grade.

The Senate on Tuesday already approved the sin tax measure.

According to Internal Revenue Commissioner Kim Henares, the bill that seeks to raise excise taxes on cigarettes and alcohol products will help generate more confidence in the Philippine government’s ability to maintain its good credit standing.

“Credit rating agencies have already mentioned it—that the enactment of the bill will be positive for the country’s credit rating. More than anything else, the enactment of the bill into law will help the country show the world that it has the political will to institute reforms,” Henares told the Inquirer.

Once it becomes law, the measure, as approved by the Senate, will help the government generate an estimated P40 billion in additional taxes every year.

The extra revenue will help the government accelerate efforts to further reduce its debt burden.

As a final hurdle, the sin tax bill will have to be approved by the bicameral conference committee of Congress before it is presented to President Aquino for signing into law.

All major credit firms—Moody’s Investors Service, Fitch Ratings and Standard & Poor’s—have rated the Philippines to a notch below investment grade.

Once the Philippines secures an investment grade, Henares said, foreign direct investments will surge into the country.

The BIR and its head agency, the Department of Finance, have been pushing for a law that will raise the excise tax on cigarettes for the past 16 years.

The excise tax rates in the Philippines are among the lowest in the world, finance officials said.

Cigarette manufacturers have waged a vigorous campaign against the bill, warning of dire consequences.

They said higher taxes would directly threaten the security of their workers.

Manufacturers likewise said tax hikes would jack up the prices of cigarettes produced by legitimate businesses, and provide a lucrative environment for cigarettes smugglers.

But Finance Secretary Cesar Purisima maintained that the taxes on cigarettes should be in line with what the World Health Organization had proposed—high enough to reduce the incidence of smoking and trim the number of smoking-related diseases and deaths.