By Cai U. Ordinario, Jovee Marie N. dela Cruz & Jasper Emmanuel Y. Arcalas
PRESIDENT Duterte is starting a new war—against cigarette smoking—as a proposed excise-tax bill on tobacco is surprising many sectors on its zoom to nearing the Philippine Chief Executive’s approval.
But the proposed bill that would upend the existing unitary tax system—imposing a uniform P30 tax per pack on all tobacco products—is making stakeholders dig their heels in.
The donnybrook was caused by the bill principally authored by Party-list Rep. Eugene B. de Vera of Arts Business and Science Professionals, which was immediately sent by the Lower House to the Senate after three days of plenary deliberations. In contrast, a priority bill of the Duterte administration, the Comprehensive Tax Reform Package seeking to lower personal income-tax rates, still lingers in the House Committee on Ways and Means, chaired by PDP-Laban Rep. Dakila Carlo E. Cua of Quirino.
De Vera filed the bill on October 19, 2016. Last November 7 the Committee on Rules referred the bill to the House Committee on Ways and Means for panel deliberation.
After only two committee hearings, the Ways and Means Committee endorsed the measure for plenary approval.
The bill was included in the House of Representatives’ official business last December 5.
Fast-track
A DAY after it was calendared, Cua sponsored and defended the bill at the plenary last December 6 and 7, before it was approved on second reading on the latter date.
With 176-30-3 votes, House Bill (HB) 4144 was passed on third and final reading last December 13 and immediately transmitted to the Senate last December 14.
The bill was coauthored by 52 lawmakers, including Cua, Deputy Speakers Fredenil H. Castro of Capiz (National Unity Party), Raneo E. Abu of Batangas (Nacionalista Party) and Eric D. Singson of Ilocos Sur (PDP-Laban).
The departments of Finance, Health and of Agriculture, the Bureau of Internal Revenue (BIR), non-governmental organizations and various farmers’ groups are openly opposing HB 4144, saying the bill seeks to set back the revenue and public-health gains of the successful “sin” tax law.
The Federation of Free Farmers and the PhilTobacco Growers Association (PTGA) are especially opposed to the “very high tax rates” under HB 4144. All cigarette manufacturers, except Mighty Corp., the leading producer of cheap cigarettes, also objected to the bill.
SEA voice
ONE of the most recent dissenting voices reverberated outside the country, as the Southeast Asia Tobacco Control Alliance (Seatca) reiterated the benefits of adopting a high unitary tax on cigarettes.
In a statement, the Seatca expressed its disappointment that a former socioeconomic planning secretary of the Philippines would support a two-tier tax system and disregard its impact on the poor and the young.
The Seatca said former National Economic and Development Authority (Neda) Director General Romulo L. Neri claimed in media reports that a unitary sin-tax system for cigarettes is “antipoor”.
“Seatca is shocked that a former national economic development chief would claim that tax systems should be designed to allow the poor to maximize their income spent on cigarettes, as if cigarettes are a necessity similar to food, water, clothing and shelter,” Seatca Program Director Ulysses Dorotheo said.
The Seatca said Neri should not overlook the link between tobacco and ill health. It added doing so goes against the aim of the Sustainable Development Goals (SDGs) of eradicating poverty and promoting well-being.
Health focus
UNDER a unitary sin-tax system, all cigarette brands are taxed the same rate, while a two-tier sin-tax system charges different rates for high- and low-cost brands, according to Seatca.
With different taxes imposed on high- and low-cost brands, a two-tier system can still make lower-cost cigarettes accessible to the poor, Dorotheo said.
He added that the Seatca believes the Philippines must focus on the aim of the sin-tax system, which is to discourage tobacco use and promote healthy lifestyles.
The group said it continues to support the Philippines’s sin-tax reforms and declare it as a best practice in reducing tobacco use.
“In the context of tobacco taxation, Brunei, Singapore and, since January this year, the Philippines are examples of international best practice with their unitary-specific tax systems. In addition, all other Asean countries, except Indonesia, impose a unitary rate on cigarettes [whether ad valorem or mixed specific and ad valorem],” Dorotheo said. “Seatca, therefore, rejects Neri’s reckless misuse of information that misleads the public and supports a pro-tobacco position.”
Opposition
DUE to the bill’s main intent—a return to a two-tier tax on tobacco products—several lawmakers have voted against the passage of HB 4144.
In explaining her negative vote, Deputy Speaker Pilar Juliana S. Cayetano of Taguig City said she voted against the bill, as “it will undermine both the health and revenue aspect of the Sin Tax Reform Act.”
According to Cayetano, the unitary tax on cigarette products has proven to be more effective, as it is practiced in many countries, and is consistent with the country’s commitment under the Framework Convention on Tobacco Control of the World Health Organization to reduce smoking prevalence and allocate higher funds for health.
Congress passed into law the Sin Tax Reform Act 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 this year.
“HB 4144 is being touted as a measure that will provide much-needed revenue to the government,” Cayetano said. However, Cayetano said she is countering this
proposition “with the fact that the tax scheme under HB 4144—at P32 [$0.64] per pack for cigarettes with a net retail price of P11.50 and below, and P36 [$0.72] for those priced above P11.50—is still very low.”
“At present, the price of cigarette in the Philippines remains one of the lowest in our region and is currently the fourth lowest in terms of tax as percent of price in Southeast Asia,” Cayetano said. “If the intention is to get more revenue, it is more logical to simply increase to a higher rate the unitary P30 [P31.20 if adjusted to inflation] applicable to all cigarettes. Why not P40, P50 or more?”
Pro-farmer?
ACCORDING to its proponents, HB 4144 aims to protect the welfare of Filipino farmers from tobacco-producing regions.
“All of us will agree that the welfare of our people from whatever region they may be residing is of paramount concern,” Cayetano said.
She explained, however, what Cua confirmed during the period of interpellation that the bulk of tobacco produce is used by tobacco manufacturers as fillers regardless of whether it is for premium or low-cost products.
“Thus, they are unaffected by the change in pricing,” she said. “In addition, the structural adjustment fund for tobacco farmers, in which 15 percent of sin-tax revenues are allocated to them has long been in place to assist the farmers to transition to a more sustainable source of livelihood.”
According to Cayetano, from 2013 to 2015, the fund has amounted to P24.6 billion.
Big burden
TOBACCO farmers belonging to the PTGA and the Philippine Aromatic Tobacco Development Association have, likewise, expressed their opposition to HB 4144.
The two groups, which represent 50,000 tobacco farmers in the Philippines, believe the proposed bill is a measure that will introduce a big increase in tobacco tax.
“Why is the House proposing to hit tobacco farmers again?” PTGA leader Saturnino Distor told the BusinessMirror. “We just had another big 20-percent excise-tax increase just this January, and we don’t even know [yet] what the impact of that will be.”
Distor said in his text message that they are calling on senators “to seek proper consultation and complete impact assessment before proceeding with any changes to the tobacco sin-tax law.”
Distor said the passage of HB 4144 would be a “very big burden” to tobacco farmers because in every increase in tobacco tax there’s a decrease in the production quota of the tobacco buyers.
According to Distor, since the passage of Republic Act 10351, the sin-tax reform law took effect in 2013.
“And that year, production was at 67.644 million kilograms,” he said noting that by 2015 tobacco production went down to 51.946 million kg.”
Fair share
IN a separate statement the PTGA issued days ago, Distor was quoted as saying that tobacco farmers have been giving more than their “fair share” of contribution to the national coffers as excise taxes contributed around P100 billion in 2015, up from P32 billion in 2012 and are now more than two-thirds of the sin-tax take.
He said HB 4144 is being “rammed down the throats” of Congress, and that farmers have never been consulted about the proposed measure.
The Department of Agriculture (DA) said it also thumbs down the two-tier tax system on cigarette products being pushed by HB 4144, as it would hurt local farmers.
“The DA supports the position of tobacco farmers,” Agriculture Secretary Emmanuel F. Piñol said. “I will direct the NTA [National Tobacco Administration] administrator to explain why the agency is taking a position that is not supported by stakeholders.”
The DA chief made the pronouncement, after the NTA, an attached agency of the DA, reportedly threw its support behind HB 4144.
Down-shifting
MEANWHILE, Siquijor Rep. Ramon V.A. Rocamora said HB 4144 only encourages down-shifting and does not really curb smoking.
“The potential for the poorer smokers to stop smoking is actually higher if we have a unitary excise tax on cigarettes,” Rocamora said. “A unitary excise tax is implemented in Australia, Japan, Ireland and Thailand, and is considered a best practice globally. Why must we deviate from such global standard, when the current sin-tax law has been heavily debated during the 15th Congress?”
Liberal Party Rep. Edcel C. Lagman of Albay said he voted against the bill, because the one-tier taxation for all kinds and brands of cigarettes “is precipitately jettisoned in favor of retaining a two-tier regime of P36 for premium cigarettes and P32 cigarettes for value or lower-priced cigarettes.”
“The efficacy of the unitary system scheduled [this year] has not even been tested on the ground,” he said. “Long and even acrimonious debates had preceded the enactment of [STRA], which eventually installed starting 2017 the one-tier system of taxation. All of these debates and inputs will be put to naught with the enactment of HB 4144.”
Lagman added the proposed bill is “antihealth,” echoing Rocamora’s view that the majority of cigarette smokers will be encouraged to shift downward to lower-priced brands, instead of quitting smoking, because they could not afford or patronize the higher-priced premium cigarettes.
“Consequently, HB 4144 defeats the purpose of reducing the number of smokers, as smoking is the single biggest cause of cancer in the world,” Lagman said.
Defenders
NONETHELESS, Cua, de Vera and Singson have defended the smooth passage of HB 4144.
Cua said he believes the bill is a health and revenue measure that will help the country’s tobacco farming industry and promote public health.
“It’s just like an imported Mercedes-Benz and an owner-type—would you impose the same sin tax of P1 million for both types of vehicle?” Cua said. “The bill, whether languishing or being fast-tracked in Congress, will still be questioned.”
De Vera said he believes the bill is needed to help the country’s tobacco farming industry.
“I do not see the relevance of HB 4144 vis-à-vis the tax-evasion probe of any cigarette manufacturer or company,” de Vera said in a text message to reporters.
According to de Vera, he filed the bill to reduce smoking, raise revenues of the government and protect the livelihood of tobacco farmers.
He said the estimated additional revenues from the bill is P14 billion per year.
“Prices of cigarettes will surely increase due to additional taxes, thus, discouraging smoking,” de Vera said.
Protection
ACCORDING to de Vera, the authors believe the bill will also protect cigarette factory workers, investors and cigarette manufacturers.
He explained that with the proposed bill, locally produced tobacco, whether high grade or low grade, would be 100-percent purchased. De Vera added that the shares of tobacco planters pursuant to two laws will be increased.
The laws he cited are RA 7171, or “An Act to Promote the Development of the Farmers in the Virginia Tobacco-Producing Provinces,” and RA 8240, or “An Act Providing for the Excise Tax Structure for Cigarettes and Liquor.”
For his part, Singson said the measure will protect tobacco farmers, particularly in his province.
“Our position is two tier, so our tobacco farmers will survive,” Singson said. “Two-tier will also allow all tobacco companies to survive, as local manufacturers that produce lower-priced cigarettes can sell at a lower price.”
He said he is challenging all members of the chambers of commerce to come to Ilocos.
“We can go to field at the time farmers are tilling their lands and they will understand why we are pushing for two-tier,” Singson said. “This position has been our position for 30 years that I have been in Congress.”
Probe support
SINGSON said in his text message to reporters that “any unlawful act, like tax evasion and smuggling, is the concern of the agencies concerned, preventing such to occur and companies to comply with the law.”
He was referring to the allegations of a scam involving fake cigarette-tax stamps.
“It is an enforcement issue,” Singson said. “I hope this will explain simply the issue we are fighting for.”
According to Singson, 75 percent to 80 percent of the market is currently “under those who sell high-priced or premium cigarettes.”
“Remove Anglo cigarette and Mighty, we won’t have a single Filipino-owned factory,” Singson said. “Is this what they call fair?”
Singson added that, “unfortunately, they are the buyers of low-grade tobacco and they use for lower price, which is much cheaper than the high grades that they use for premium cigarettes that are more expensive.” He declined to name who the “they” he is referring to.
Cua, meanwhile, welcomed the expanded investigation being conducted by the BIR into the widespread use of fake tax stamps on cigarette packs to cover all manufacturers and importers.
“I support the BIR in all its efforts to combat tax evasion,” Cua said.
De Vera added it is fair and meritorious for the BIR to check the foreign firms to address serious concerns that the government is losing billions of pesos in revenues yearly through the said-tax-avoidance scheme.
“It is the duty of the BIR to run after tax evaders, more so those who fabricate fake stamps on cigarettes to avoid payment of excise taxes,” de Vera said. “However, there should at least exist factual basis before any probe and issuance of ‘Letter of Authorities’ for audit and assessment.”
He added that such policy “should be applied equally with no arbitrariness observing the sporting idea of fair play.”
Party-list Rep. Rodel Batocabe of Ako Bikol, president of the Party-list Coalition, asked the BIR to expand its campaign on all cigarette manufacturers.
“That is laudable, so long as the campaign is sustained, unrelenting and transparent,” Batocabe said. “But the BIR should not confine itself with the tobacco industry but also to other big industries, which have significant leakages.”
Image credits: Nonie Reyes, AP/Aaron Favila
3 comments
HB 4144 was passed with such haste that it makes one wonder if they even read and studied the entire bill. People are opposing it and with good cause, let’s just hope that those in the right position will review it and base their decisions on whether or not it will really benefit the country.
The negatives of these bill is a mockery of public health and interest, of logic and reason and yet our esteemed TONGgressmen were gung ho to pass it. A bill openly backed by Mighty Corp, the same Mighty Corp currently being investigated by the BIR for using fake cigarette stamps.
No wonder if this bill gets fast-tracked, this only means more money to line in their pockets for this TONGressman!