Drilon repackages controversial sin tax bill

Sen. Franklin Drilon, acting chair of the Senate ways and means committee, has repackaged the controversial sin tax measure and filed a substitute bill that seeks to raise between P40 billion and P45 billion in additional taxes from tobacco and alcohol products in the first year of implementation.

Drilon said the proposal that replaced the committee report earlier filed by Sen. Ralph Recto would be “the single most important health reform measure in the past decade and would impact on the lives of an estimated 100 million Filipinos.”

Recto’s version, which was formally withdrawn from plenary on Tuesday, intended to collect between P15 billion and P19 billion in additional taxes in its first year of implementation.

Drilon said the substitute bill would collect P26.8 billion from cigarettes, P7.1 billion from distilled spirits and P12.5 billion from fermented liquor products like beer.

He said the additional taxes on cigarettes reflected the same target indicated in the sin tax version passed by the House of Representatives.

Combination

The collection from distilled spirits would be a mix of (an excise rate of) P30 and 30 percent on the net retail price, which Drilon said was “a combination of specific and ad valorem.”

He said extra revenue from fermented liquor would be based on a “two-tier system for products” with different net retail prices.

Senators went into caucus right after the roll call at the start of the session yesterday afternoon. Drilon was the one who suggested the closed-door meeting.

Consensus

Before the caucus, Senate Majority Leader Tito Sotto said Drilon had indicated that he had gotten “a consensus from the members about the possibilities of compromise” on the sin tax measure.

Sotto said Drilon’s initiative was aimed at speeding up the bill’s approval, hence his insistence on explaining the intricacies of the substitute bill in caucus.

Drilon, in a separate interview before the caucus, said he wanted to explain the amendments to the committee report submitted by Recto that would be proposed in the substitute bill.

This was to save time so that Drilon and other supporters would  not have to repeatedly stand up and explain its details during plenary debates.

“That will save us time but that does not prevent a senator from standing on the floor and putting certain statements on the record,” he added.

Legislative scholarship

In his sponsorship speech, Drilon commended Recto’s efforts and “legislative scholarship.”

He noted that the erstwhile chair of the Senate ways and means committee “invited all stakeholders in lengthy, impassioned yet productive committee hearings to ferret out the truth from falsehood and facts from fiction” before putting together the report presented in plenary last month.

Drilon added that members of the ways and means committee “reject in the strongest possible terms” insinuations that Recto was “motivated by reasons other than his desire and strong belief (in the) national interest.”

Recto remained stoic as he sat across from where Drilon delivered his speech.

Recto resigned as chair of the committee in October and said he was pulling out the report he submitted after officials of the finance and health departments and of the Bureau of Internal Revenue expressed disappointment over his presentation.

The officials apparently wanted Recto to adhere to a version that targeted P60 billion in additional revenue a year, an amount closer to the figure endorsed by the Department of Finance (DOF).

A legislative liaison officer even insinuated that Recto may have enjoyed lobby money from tobacco interest groups.

Scaled down

After Recto’s departure from the committee, the DOF scaled down its target, reducing it to P40 billion, which is now the target revenue of the Senate substitute bill.

Present in the gallery when Drilon presented his substitute bill were Internal Revenue Commissioner Kim Henares and representatives of the finance and health departments.

Senate President Juan Ponce Enrile and Senators Panfilo Lacson, Sergio Osmeña III and Joker Arroyo were the first four to interpellate Drilon.

Then Recto raised his hand and warned that the new revenue targets would force tobacco and alcohol companies to raise their prices if to maintain their present profits.

For example, the tobacco industry with gross revenue of P87 billion would pay P36 billion in taxes from this amount, according to Recto. He said the net income of this industry was “roughly P8 billion.”

Transfer pricing

Drilon said he had “reservations that that is the true income because of suspicion of transfer pricing” by tobacco companies.

Recto said that in the case of fermented liquor, BIR records showed the gross revenue from the product was P67 billion. From this amount, P30 billion went to the government and net profit it P12 billion, he added.

“This means the industry would have to sell P79 billion worth of products to earn the same profit. Distilled spirits, on the other hand, at present pay P11 billion in taxes.

Drilon said the gross revenue from distilled spirits amounted to P57 billion for local manufacturers.

“But if we want to collect more taxes, these industries would have to sell more products. I thought we want to discourage people from smoking? This is a health measure masquerading as a revenue measure, or a revenue measure masquerading as a health measure.  Which is which?” Recto shot back.

“There are no masks here. We try to pursue both objectives,” Drilon said.

For his part, Enrile, the first to interpellate Drilon, noted that the projected P26.8 billion in tobacco revenue would be on top of the P87 billion that the government was currently collecting from the industry.

“The amendment would mean the industry would have to generate P113.8 billion (in the first year of implementation). Can we maintain the (sales) volume… after additional taxes? If not, what will be the impact on profitability of the industry in the country,” Enrile asked.

He also posed the same question for distilled spirits and fermented liquor. However, Enrile suspended his interrogation and relinquished the floor to Lacson who asked for a clarification on  market shares of separate categories of cigarettes—low-grade or hand-rolled tobacco, and medium-, high-grade and premium.

Osmeña said smokers could merely switch from higher to lower-priced cigarettes to satisfy their urge, defeating the objective of curbing tobacco use.