This is a re-posted article.
An amended version of the “sin” tax bill was approved yesterday by the House of Representatives ways and means committee, ending months of debate in the chamber on the contentious revenue measure.
The Department of Finance (DoF) agreed to the easing of key provisions in House Bill (HB) 5727, which aims to overhaul the excise tax system on "sin" products made from alcohol and tobacco. The substitute bill was proposed to the ways and means committee yesterday -- the first day of discussions after a month-long recess -- and it was passed with 46 lawmakers in favor and 14 opposed.
"This approval marks a landmark in the history of the Philippine legislature as it paves the way for a significant restructuring of excise taxes on tobacco and alcohol after more than 15 years," Finance Secretary Cesar V. Purisima said in a statement.
Proponents of the reform agreed that a compromise was necessary, Mr. Purisima explained, given the alcohol and tobacco bloc’s strong opposition to the original measure.
Ways and means committee chairman Rep. Isidro T. Ungab (3rd district, Davao), along with Finance Undersecretary Jeremias N. Paul, Jr., met with stakeholders over the recess to hammer out the substitute bill.
"You win some, you lose some," Finance Assistant Secretary Ma. Teresa S. Habitan said.
Under the amended HB 5727, excise taxes on alcohol and tobacco ended up slightly lower than initially proposed, but are still significantly up from current rates.
The new measure also scales the taxes to two tiers for tobacco products and three for alcohol products, depending on net retail price. The National Internal Revenue Code (NIRC) currently enforces four tiers, which the DoF claims only encourages people to shift to cheaper products.
The department originally pushed for a single tax rate, which became one of the thorniest issues during the debates as opponents argued that this would place a heavy tax burden on local manufacturers and consumers.
Under the substitute bill, cigarettes with a net retail price of P11.50 and below will be taxed P12 on the first year of implementation and P22 on the second year. Those priced more than P11.50 will be taxed P28.30 and then P30.
The original bill urged that cigarettes costing P10 and less be taxed P10 this year and P22 in 2013. For those costing more than P10, the charge was P30 this year and the next. By 2014 all cigarettes would be taxed P30, rising to P30.90 in 2015 and P31.83 in 2016.
Cigarettes are currently taxed P2.72 to P28.30.
Meanwhile, distilled spirits priced less than P90 will be taxed P20 under the substitute bill. For those costing P90 to P150 it is P80 and for more than P150, it is P320.
In the original HB 5727 products with an alcohol content of 45% or less would be taxed P42 per proof liter initially, rising to P80 in 2013. More than 45% means a charge of P317.45 per proof liter this year and P233.73 in 2013. By 2014, all distilled spirits would be taxed P150, increasing to P154.50 in 2015 and P159.14 in 2016.
The amendments still address the issues that led to the country losing a case at the World Trade Organization last year. The United States and the European Union had charged that the Philippines discriminated against imported distilled spirits.
For fermented liquor, meanwhile, the amended bill proposes a tax of P13.75 for products priced P50.60 and below. Those that cost more will be taxed P18.80. Microbreweries and small establishments will be taxed P28 regardless of the net retail price.
Under the original bill, the rate was P25 per liter, increasing to P25.75 in 2013, P26.52 in 2014, P27.32 in 2015 and P28.14 in 2016.
Fermented liquor is currently charged P8.27 to P16.33 per liter.
The excise rates on alcohol and tobacco are programmed to increase by 8% every two years, from 2015 to 2025, a significant change from the original proposal to index the rates to a consumer price index and adjust them yearly.
It is still an improvement from the current NIRC schedule where tax rates are adjusted every two years but with no requirement for the size of the increase.
Alcohol and tobacco products will also be reclassified every two years to ensure that they still fall into the proper tiers. The substitute bill abolished the current price classification freeze.
Under the law, alcohol and tobacco products in the market before 1997 are taxed based on their 1997 prices, but new entrants are categorized based on their current prices.
The amendments to HB 5727 divided the industry, with British American Tobacco (BAT) lauding the government for finding a middle ground but Philip Morris Fortune Tobacco Corp. claiming there was "no due process."
The Distilled Spirits Association of the Philippines (DSAP) said it still had qualms but added that it generally accepted the changes forwarded by the DoF.
Now that HB 5727 has been approved at the committee level, Mr. Ungab said he would ask President Benigno S. C. Aquino III to certify the bill as urgent. If so, HB 5727 will undergo only one session for its second and third reading at the lower chamber.
"I am positive that this will be certified as this is included in the [government’s priority list]," he noted.
Mr. Purisima was also optimistic, saying: "We look forward to having this bill passed by next month and enacted into law within the year."
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By: Diane Claire J. Jiao and Monica Joy O. Cantilero
Source: BusinessWorld, May 10, 2012
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