Tobacco firm open to reasonable sin tax hike

Philip Morris and Fortune Tobacco Corp. said it is open to a ‘reasonable increase’ in sin taxes but opposed proposals, including those of the Department of Finance, on ‘indexing’ tobacco taxes to inflation. “We’re not opposed to a reasonable increase in sin taxes," PMFTC president Chris Nelson said on Thursday, but he also warned that job losses might result if the government raises taxes on his firm’s products. PMFTC, a company controlled by the Lucio Tan Group, said it would rather that the current sin tax law be extended by five to six years. The PMFTC stance comes about a week after the Department of Budget and Management reiterated its support for pending measures to “restructure sin taxes" as one of priority bills of the Aquino administration. “The Aquino administration continues to support the indexation of sin taxes on tobacco and alcohol to inflation as a key reform measure. It is expected to generate about P60 billion, of which about P33 billion of that we can use for social services for the poor, particularly universal healthcare for the second quintile of poor households," DBM Secretary Florencio Abad said in a statement on Nov. 9. Abad issued the statement to counter recent news items that quote him as saying that the DBM opposes the indexation and channeling the proceeds to social services. The DBM chief clarified that the report “were based on an outdated position paper that the DBM submitted to the House Committee on Ways and Means on November 17, 2010." He said that back then there was no official position of the Aquino administration yet on the indexation. “This old policy document has subsequently been reversed by the President’s inclusion of the measure in the LEDAC list of priority bills. Unfortunately, certain sectors who oppose the indexation of sin taxes recycled our old position and tried to peddle it as new to the public through the media," Abad said. Concerns of the WTO The proposed sin tax reforms may also address concerns of the World Trade Organization (WTO), President Benigno Aquino III said last August without elaborating. The WTO has ruled Philippine taxes on imported alcoholic drinks were discriminatory. "You also want to simplify the process of collecting the taxes," Aquino told reporters. "The methods of production, for instance, of liquor is an issue, there are also WTO concerns, so these will all be tackled by the various committees in charge of reviewing the sin taxes." Both the United States and European Union have urged the Southeast Asian nation to quickly comply with the WTO ruling that its alcohol tax discriminated against foreign brands. Trade Secretary Gregory Domingo said the Philippines would appeal the WTO ruling. The proposed changes would see a multi-tiered tax structure on tobacco products replaced with two rates during the first year of new tax, and a uniform rate in the second year. The tax would be indexed to inflation in the third year. For alcohol products, the bill proposes a uniform rate for three years before the tax is indexed to inflation. However, the revised alcohol tax still provides for a different tariff on products made using local materials — a provision which the WTO says is discriminatory. Brussels and Washington complained in separate cases filed at the WTO that the Philippines had violated global trade rules by taxing foreign alcoholic beverages at rates 10 to 40 times higher than Philippine brands made from homegrown materials such as sugar and palm. — ELR/VS, GMA News