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House Passes Philippine 'Sin Tax' Bill

by Mary Swire,, Hong Kong

07 June 2012

The Philippines’ government has welcomed the approval by the House of Representatives of the bill to reform the country’s existing ‘sin taxes’ on alcohol and cigarette products, and is urging the Senate to follow suit as soon as possible.

Current cigarette excise taxes operate on a tiered system that is not indexed to product prices, but relies on the year the product was introduced to establish the relevant price and rate of duty, which, for example, fixes and protects older and more-favoured brands at 1996 duty rates.

With regard to distilled spirits and fermented liquor, the excise duty level is based on the raw material from which the alcohol is distilled and, effectively, favours locally-produced drinks over imported products. That has been ruled non-compliant by the World Trade Organization (WTO).

The previously-proposed structural change and simplification of sin taxes would have established a unitary rate, but had attracted strong opposition from within the industry. A compromise was, however, arranged by the Department of Finance which, while establishing a tiered, not unitary, system, still links tax rates to product prices.

For distilled spirits, a three-tier progressive tax rate based on net retail prices per bottle has been approved, while a two-tier tax structure would be introduced for cigarettes. Both would have an 8% indexation mechanism, every two years from January 1, 2015 until January 1, 2025.

The rationalization of sin taxes has been a priority measure of President Benigno Aquino’s government, despite the fact that the amount of additional tax revenues that now can be expected to accrue to the government from the revised measure has been reduced from PHP60bn (USD1.4bn) annually to only an expected PHP33bn.

Following the approval of the legislation by the plenary session of the House, Finance Secretary Cesar Purisima noted that its passage “signifies the political will of this administration to institute needed reforms that shall help us achieve macroeconomic stability and fiscal sustainability. I thank the House of Representatives for working double time to secure the passage of this bill, vital for its potential contribution not only to state revenues.”

He called on the Senate “to ensure the passage of HB 5727 into law within the year keeping in mind the welfare of the Filipino people”.

TAGS: tax | business | law | Philippines | excise duty | legislation | tax rates | retail

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