IMPOSING higher excise taxes on tobacco products, as what the Duterte administration under its tax-reform packages is pushing, may discourage farmers from planting the crop and may force the country to import more, according to National Tobacco Administration (NTA) Deputy Administrator Mel John I. Verzosa.
“‘Sin’ taxes have an impact on demand. It is possible [that the demand for tobacco products would decline further due to additional taxes],” Verzosa said in a recent interview where the BusinessMirror sought his comments on the proposed additional excise taxes under the Comprehensive Tax Reform Package (CTRP) 2 plus.
“And our tobacco farmers will not plant if they do not have any orders from the market. Unlike rice and other crops wherein people will continue to buy, in the tobacco industry, if you do not have an assured market, then farmers will not plant,” Verzosa added.
Tobacco manufacturers may be forced to import more raw materials abroad to cushion the additional taxes slapped on their products, according to Verzosa.
Verzosa added that raw tobacco imported from countries, such as Brazil, Indonesia, Malaysia and China, are chaper than the locally produced ones.
Verzosa said the country’s total tobacco demand annually is pegged at around 81,000 metric ton, with nearly 48,000 MT of which is supplied by local producers, while the remaining volume is filled up by imports.
The country’s unmanufactured tobacco imports in 2017 grew by nearly 3 percent to 53,614.758 MT, from 52,115.123 MT recorded volume in 2016, NTA data showed.
The volume of unmanufactured tobacco imported last year was valued at $237.809 million, 9.14 percent higher than the $217.902-million import bill recorded in 2016.
Furthermore, NTA data showed that the country’s manufactured tobacco imports last year expanded by more than half or by 66 percent to 9,003.573 MT, from 5,401.261 MT in 2016.
Total manufactured tobacco products imported in 2017 was valued at $123.352 million, 90.20 percent higher than the $64.853 million recorded amount in 2016.
The country’s tobacco production in 2017 reached 48,179.168 MT, 1.48 percent higher than the 47,477.495 MT recorded output in 2016, according to NTA data.
Verzosa proposed that instead of slapping higher excise tax on tobacco products, the government should first eradicate illicit cigarette trade and maintain the status quo on current taxes. Citing news reports, Verzosa said the smuggled cigarettes amount to about 40 percent of the total volume sold in the local market.
“If you cannot eradicate that 40 percent, then you opt to tax the legitimate manufacturers, then what would be the benefit of [higher excise taxes]?” he said.
“Why not maintain the status quo and eradicate the smugglers. Isn’t it the purpose of sin taxes to reduce the number of smokers? But how will you discourage people from smoking if there are cheap available cigarettes in the market due to smuggling?” he added.
The government’s CTRP 2 plus seeks to impose additional excise taxes on cigarette products and alcoholic beverages to discourage their consumption.
The Department of Finance supports Senate Bill (SB) 1599 filed by Sen. Emmanuel D. Pacquiao, raising the excise tax slapped on tobacco products.
SB 1599 proposes to revise the existing legislation and nearly the excise tax on cigarettes, from the current P35 per pack to as much as P60 per pack, with provisions for an annual increase of 9 percent, from the initial 4 percent.
Pacquiao said the proposal should help reduce the so-called prevalence of smoking to only 19.8 percent by 2020, from more than 22 percent at present, based on latest government data, and significantly reduce the burden of extending health care to the smoking segment of the population