[Intl-tobacco] Philippines: Philip Morris rejects indexation, calls for flat tax rate on cigarette products

[Rob Weissman]

Philip Morris rejects indexation, calls for flat tax rate on cigarette
products
ABS-CBN News
July 29, 2004

By Lawrence Agcaoili
TODAY Reporter

American-owned Philip Morris Philippines Manufacturing Inc. is strongly
opposing the proposed tax indexation on cigarettes and is instead
pushing for a flat increase in excise tax rates across all brands to
level the playing field among the major proponents in the domestic
tobacco industry.

Philip Morris Philippines public affairs and communications manager Dave
Gomez Thursday warned that the proposed tax indexation could result in a
lower tax take for the government. Instead of being able to collect
higher taxes on high- and medium-priced cigarette brands, Gomez said the
government would have a lower tax take since consumers would be forced
to downgrade to lower-priced cigerettes under the proposed indexation.

=93All we want is a fair, equitable and moderate increase, and what we are
proposing is a uniform increase across all brackets,=94 he said.

The Comprehensive Tax Reform Law of 1997 imposes a four-tier specific
system based on the retail price of cigarettes. Under the scheme,
low-priced cigarettes with a net retail price of less than P5 per pack
are levied P1.12 per pack, while a medium-priced pack worth between P5
and P6.50 is charged another P5.60. On the other hand, high-end
cigarettes with a net retail price of between P6.50 and P10 per pack are
levied P8.96, while premium brands priced above P10 are taxed P13.44.

Since the scheme was adopted, Gomez pointed out that there has been a
noted shift by consumers from high-end brands to low-priced brands.
Indeed, the share of high-end cigarettes in the market has dropped to
30.4 percent from 40.1 percent in 1997, while the share of medium-priced
brands fell to 21.5 percent from 25.7 percent.

On the other hand, the share of low-priced brands increased to 48
percent from only 34.2 percent in 1997.

Under the proposed tax indexation, the excise tax on premium brands
would increase to P16.48 per pack from P13.44, while that of high-end
brands would go up to P10.98 per pack. The tax on medium-priced brands
would reach P6.87 per pack, while that of low-priced brands would go up
to P1.37 from P1.12 per pack.

Gomez said the proposed tax indexation would only widen the gaps in the
present price brackets of cigarette.

=93Because the government is using percentages, the change for the
low-priced brand is just a mere 25 centavos, while for the high-end
brands this means a P2 increase in absolute terms. The indexation of sin
products would mean widening the gap between the tax brackets,=94 he
explained.

Philip Morris Philippines is the country=92s second-largest cigarette
producer with a market share of 25 percent next to Fortune Tobacco Corp.
of tobacco and airline magnate Lucio Tan that controls 50 percent of the
domestic market. The size of domestic cigarette market is currently
pegged at around 80 billion packs per year.

The proposed indexation of the excise tax on sin products is one of the
eight revenue measures being pushed by President Arroyo to generate P100
billion for the national coffers.