Senate OKs lower cigarette tax by 2017

Senate President Juan Ponce Enrile said the Senate version of the sin tax bill would preserve the “old system of classification” of cigarettes to low, middle, and high-class varieties that would be taxed different amounts from 2013 to 2016. INQUIRER FILE PHOTO

Tobacco companies gained a minor victory Tuesday night after senators agreed to lower the unitary tax on cigarettes from P32 to P26 per pack by 2017, the fifth year of implementation of the proposed higher taxes on sin products.

The amendment was made just before the Senate, on a vote of 15-2,  approved on second and third reading the so-called sin tax bill certified as urgent by Malacañang. Sen. Francis Escudero and Sen. Joker Arroyo voted no.

‘Distorted model’

The change was accommodated after Senate President Juan Ponce Enrile and Sen. Ferdinand Marcos Jr., both from the tobacco-producing North, objected to what Enrile called a “distorted and disproportionate model” of tax increases proposed by the Department of Finance from 2013 to 2017.

Enrile said the Senate version of the sin tax bill would preserve the “old system of classification” of cigarettes to low, middle, and high-class varieties that would be taxed different amounts from 2013 to 2016.

Only at the start of 2017 would all classifications impose a unitary tax of P26 per pack as agreed Tuesday night, Enrile said.

While a clear explanation was not given for the reduction in unitary tax, observers noted that it was announced after the Senate suspended discussions on the sin tax bill after Enrile accused the bill’s sponsors of presenting a “distorted and disproportionate model” that would force tobacco companies to pay more taxes than their counterparts in the alcohol industry.

Higher burden

Enrile had complained that based on assumptions made by the DOF, the tobacco industry could end up shouldering as much as 69 percent of the tax burden meant to be shared with alcohol products.

Enrile, waving what looked like a copy of the DOF report, said that while this ratio might be applicable in 2013, the DOF model also showed that the tobacco industry would shoulder a higher burden of 68 percent in 2014, 69 percent in 2015, 67 percent in 2016, and 66 percent in 2017.

He noted that in 2011, the tobacco industry’s share of sin taxes was only 57 percent.

“There is a definite bias (in) this proposal in favor of alcohol against tobacco farmers of the North.  This is against tobacco. Why?” he asked with some irritation.

Marcos supported Enrile’s observation. Marcos earlier  took the floor and noted the distortions in burden sharing.

Still committed

“I think the (senators) who do not believe in this distribution deserve an explanation from the secretary of finance,” Enrile said.

On Monday night, Sen. Franklin Drilon, the acting chairman of the ways and means committee, announced that the senators had agreed during a caucus to a 60-40 burden sharing between the tobacco and alcohol industries on the P40-billion incremental tax to be imposed on sin products.

Enrile said the Senate was still committed to its promise to Malacañang to approve the sin tax bill.

More time

“There might be a misunderstanding. I want to put it on record so we would not be blamed that we are derailing the sin tax. But we (have to) push it according to the agreement,” he said.

Drilon asked that he and his  staff be allowed to “recompute” the burden-sharing ratio starting 2014.

“We wish to have a little more time… We are requesting that we suspend consideration of this measure and take it up again tomorrow,” he said.

Early during Tuesday’s discussion, Sen. Joker Arroyo complained that the bill did not specify the appropriations that would be given to healthcare.

The sin tax bill proponents had said that the additional revenue from the sin taxes would be used to fund healthcare needs, particularly  the repair of government hospitals and  paying the Philippine Health Insurance Corp. (PhilHealth) premiums of poor Filipinos.