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Philippines Confirms Compliance In WTO Booze Dispute

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

01 February 2013


Following the recent reform to the country's taxes on alcoholic products, the Philippines government has confirmed that it has complied fully with the World Trade Organization (WTO) ruling that the previous excise taxes it applied on imported distilled spirits were discriminatory.

Previously, the Philippines applied tax rates on distilled spirits that differed depending on the product from which the spirit was distilled. Domestic distilled spirits in the Philippines were made from local materials, such as sugar and palm, to create a variety of different spirits, including whisky, brandy, gin, vodka, and tequila, that were typically taxed in the Philippines at a low rate.

On the other hand, imports of the same spirits made from other materials (such as whisky distilled from wheat) were taxed at significantly higher rates (approximately 10 to 40 times higher) than the low rate applied to domestic products.

At the behest of the United States and the European Union, a WTO panel (confirmed by its Appellate Body in December 2011) found that, "because imported spirits are taxed less favorably than domestic spirits, the Philippine measure, while facially neutral, is nevertheless discriminatory." Specifically, the panel found that the Philippines applied higher taxes to imported distilled spirits than to "like product" or "directly competitive or substitutable" domestic distilled spirits, in violation of General Agreement on Tariffs and Trade articles.

The Philippines government then negotiated with the US and the EU on the reasonable period of time (RPT) for it to comply with the WTO ruling. Following negotiations to raise their initial offer of only nine months, the US and the EU agreed for the Philippines to comply within 13 months and 16 days. Consequently, the RPT would have expired on March 8, 2013, but the Philippines has complied well within that expiry date.

The Philippines has adopted a uniform tax that applies equally to all distilled spirits. For distilled spirits, from January 1, 2013, an excise duty will now be levied at a rate of PHP20 (USD0.49) per proof liter plus 15% of the net retail price per proof liter (excluding the excise duty and value-added tax). On January 1, 2015, the duty percentage will be increased to 20%.

During the latest WTO Dispute Settlement Body (DSB) meeting on January 28, 2013, therefore, the Philippines Ministry for Foreign Affairs reported full compliance with the WTO ruling, as confirmed by comments from the representatives from the US and the EU.

The US delegate to the DSB said that "the new tax system eliminates the use of raw material type as a basis for applying different tax rates to distilled spirits, and which is an excellent step forward, … (but) because the new tax system has only been in place for a few weeks, we are continuing to watch closely its implementation. However, we are hopeful that it will result in full implementation of the DSB's recommendations and rulings."

The EU delegate thanked the Philippines for the transparency it had demonstrated during the implementation phase, but added that it is analyzing the recently-issued implementing rules and may need to seek clarifications on their practical functioning.

TAGS: compliance | tax | tax compliance | World Trade Organisation (WTO) | Philippines | excise duty | trade disputes | tax rates | United States | retail | trade | European Union (EU) | Europe

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