Filipino Government To Simplify Tobacco Tax

by Mary Swire, Tax-News.com, Hong Kong

28 October 2008

The Filipino Department of Finance has submitted plans to parliament that aim to simplify the excise tax collection method which currently applies to the country's tobacco products.

The department has given its backing to the government's reorganization of the way in which they collect tax on packets of cigarettes, which will see the complicated four-tier method currently used replaced with a much simpler single rate system.

At present, packets of cigarettes in the Philippines are taxed in one of four ways according to the price of the pack. The lowest priced packets are subject to a tax rate of PHP2.23 and the highest priced packets PHP26.06 per pack.

However, the complications surrounding this awkward method of taxation are thought to have contributed to major shortfalls in excise tax revenues, exacerbating the government's deficit.

The new system, which will be introduced in two phases over the next two years, is aimed at reducing the complications that have led to losses by making the excise tax much harder to dodge.

Starting next year, the four-tier tax system will shift to a two-tier one, with packs costing PHP6.50 or below taxed at PHP8 per packet and any packet above this price threshold taxed at a rate of PHP14 per packet. After this introductory phase, the government will then impose a single P14 rate of taxation on every packet of cigarettes.

The only exception to the new legislation thereafter will be cigarettes packed by hand - the least common form - which will be given an excise levy of PHP2.47 to begin with, followed by annual inflation-based rises in future years.

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