A major business group asked the Senate on Sunday to junk House Bill (HB) 4144, which seeks to reimpose the two-tier taxation for cigarettes, after its main backer in the House was ordered investigated by the Bureau of Internal Revenue (BIR) for allegedly using fake tax stamps.
This developed as the debate on whether a unitary tax system for cigarettes is better than the proposed two-tier scheme among lawmakers has intensified. Federation of Philippine Industries (FPI) Chairman Jesus L. Arranza cautioned senators from being associated with HB 4144, as the lone company that supported it in the House is now embroiled in a tax-evasion probe.
In advising the Senate to be cautious with the “Mighty bill”, Arranza quoted the legal doctrine, “He who comes to court should come with clean hands.”
“How can the Senate act on a tax bill openly being pushed by a company now under investigation for tax evasion?” Arranza asked. “No senator, especially the reelectionists would want to be associated with this bill.” “Let the BIR investigation finish first to see if the company is guilty or not before the Senate acts on this HB,” he added.
Internal Revenue Commissioner Caesar Dulay has ordered the investigation of Mighty, after receiving field reports from his agents, who discovered fake tax stamps affixed on Mighty products. Finance Secretary Carlos G. Dominguez III backed Dulay’s move, and ordered tighter monitoring and enforcement. Tax stamps on cigarette packs are proof of excise-tax payment.
In a social-media post, Rep. Joey S. Salceda, an advocate of the unitary system, hinted that the subject of the BIR probe is the same company that will benefit from the passage of HB 4144.
“Prime beneficiary of the two-tiered specific excise tax on cigarettes,” read Salceda’s comment on the news article regarding the investigation on Mighty.
Arranza said that, based on various sources and estimates, government revenue losses from nonpayment of excise taxes have reached “an alarming P10 billion a year”.
Mighty, represented by former National Economic and Development Authority Secretary Romulo Neri, testified before the House Ways and Means Committee, they favor HB 4144, which seeks to impose higher excise taxes on cigarettes while changing the current unitary system to the old two-tier structure that bred the practice of tax underdeclaration for low price cigarette manufacturers.
The departments of Finance, Health and of Agriculture, the BIR, NGOs and various farmers’ groups openly opposed HB 4144, as this would set back the revenue and public-health gains of the successful “sin” tax law. The Federation of Free Farmers and the PhilTobacco Growers Association are especially opposed to the “very high tax rates” under HB 4144. All cigarette manufacturers also objected to the bill, except Mighty, the leading producer of cheap cigarettes.
In an unprecedented move, Arranza’s FPI has joined major business groups in the country in expressing strong opposition to the proposal, which came out in a series of print ads. The others signatories included the Philippine Chamber of Commerce and Industry, Employers Confederation of the Philippines, Makati Business Club, Financial Executives Institute of the Philippines, Management Association of the Philippines and the Foundation for Economic Freedom.
The print-ad manifesto was also signed by the various international business chambers, including the American Chamber of Commerce of the Philippines, Federation of Filipino-Chinese Chamber of Commerce and Industry Inc., European Chamber of Commerce of the Philippines, Australian-New Zealand Chamber of Commerce, Canadian Chamber of Commerce, Japanese Chamber of Commerce and Industry of the Philippines, the US-Asean Business Council and the Korean Chamber of Commerce Philippines.
Earlier, Arranza said going back to the two-tier system in taxing cigarettes may violate the country’s antitrust law. “Imposing two tax rates on cigarettes is creating market segmentation that favors manufacturers that sell cheaper brands and are subject too lower taxes. It’s against the competition law. If you are going to have a bigger market share, it should stem from fair competition in the market, and not because the tax system is favoring you,” Arranza said.
The National Tobacco Administration was the lone agency that supported the proposed measure.
‘Careful study’
The Senate is not inclined to readily thumb down HB 4144 even as Sen. Sherwin T. Gatchalian pushed for a thorough probe on some of its private proponents that were allegedly linked to a fake tax-stamps scheme.
Senate President Aquilino L. Pimentel III, however, assured that senators will not railroad the passage of any bill, and that all bills submitted for their consideration will be given due course.
“We will study all bills [and we will act] based on merit,” the Senate leader said, adding, “but we will also not super rush anything.”
Sen. Miguel F. Zubiri, Senate Trade, Commerce and Entrepreneurship Committee chairman, said it is “too early” to decide on the two-tiered tax for cigarettes bill.
“I would want to listen to both sides of the story,” Zubiri said, “if maintaining the present rate will be good for the economy or will the two-tiered system will be better.”
Zubiri added he would rather await the Senate hearings on the proposals before making any decision. “Right now, the lobbying is intense, but what I can assure the public is that my vote will be on the merits and would be the best for our farmers and our country.”
Sen. Juan Edgardo M. Angara, Senate Ways and Means Committee chairman, said FPI officials will be summoned to testify on their allegations when the panel starts public hearings on the cigarette-tax bill.
“They will be asked their position should the time come for hearings on the said bill,” Angara said in a text message to the BusinessMirror. For his part, Gatchalian said whether the cigarette tax is unitary or two-tier, “using fake tax stamps is criminal.” “It deprives the government of taxes. That should be proven and investigated immediately,” he added.
‘Retain old scheme’
House Deputy Speaker Pia S. Cayetano of Taguig, one of the main proponents of the Sin Tax Reform Act, said the proposal “threatens to turn back the gains we have achieved in the last three years, particularly in improving tax-collection efficiency, reducing leakages and corruption, and effectively discouraging smoking among Filipinos, especially our youth.”
“The Sin Tax Reform Act, which is hailed as a landmark health and revenue measure, was passed by both chambers of Congress in 2012 and became a law in 2013, with a tax structure that is graduated to simplify the tiers for cigarette taxes—from the original five tiers down to two, and further down to just one by January 2017,” Cayetano said.
“It is disappointing that only three years following the passage of the Sin Tax Reform Act and right on the eve of implementation of a unitary tax regime by next month, we now face the prospect of reverting to a two-tier system under HB 4144,” she added.
Party-list Rep. Tom S. Villarin of Akbayan said he would rather wait for the ongoing review of the sin- tax law. “The law has worked out quite well for the past four years. Perhaps it would be better to see it through until the ongoing review is finished.”
According to Villarin, the sin tax law of 2012 was designed precisely to generate enough revenue for universal health care, while gradually transitioning as a tool to encourage a healthier lifestyle for Filipinos by eventually discouraging smoking.
Deputy Minority Leader and party-list Rep. Eugene Michael de Vera of ABS, principal author of the bill, defended HB 4144, saying the proposed two-tier scheme is “needed to help the country’s tobacco-farming industry and promote public health.” Butch Fernandez, Jovee Marie N. dela Cruz and Rea Cu
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“The departments of Finance, Health and of Agriculture, the BIR, NGOs and various farmers’ groups openly opposed HB 4144, as this would set back the revenue and public-health gains of the successful “sin” tax law. ”
With this much opposing it, the new bill should really be halted.
This bill is ridiculous! And yet our TONGgressmen passed it, and in lightning speed at that despite logic and reason. Pera pera na lang talaga yan. But the fight aint over yet!
Duterte’s lapdogs in Congress are in effect biting Duterte. HB 4144 brings with it unintended adverse consequences for this new administration