[Intl-tobacco] Philippines; 'Palace twisted DOF arm on sin tax'

[robert weissman]

http://www.abs-cbnnews.com/NewsStory.aspx?section=3DNational&OID=3D62299

October 26, 2004
ABS-CBN News
'Palace twisted DOF arm on sin tax'
By DAXIM LUCAS
TODAY Senior Reporter
The excise tax bill approved by the House of Representatives on Monday
received the
imprimatur of no less than Malaca=F1ang, forcing the Department of Finance
to agree to
a "watered-down" version that will cut expected tax revenues by half.
Official sources told Today that DOF officials "received word" that
"President
Arroyo's economic managers" had agreed to a reduction in the indexation
rate from
the original 30 percent to 20 percent.
"Finance was also told to forget the biannual indexation and forget
reclassification," the official said, requesting anonymity.
Biannual indexation of excise taxes to adjust for inflation would have
given the
government a steady stream of continually rising revenues without having
to approach
Congress every time taxes on tobacco and alcohol are to be raised.
The reclassification provision, on the other hand, would "level the
playing field"
between manufacturers of different cigarette brands by adjusting the
prices -set way
back in 1996-on which various tax rates are computed.
"When you support a watered-down bill, the result will be a bill that is
even
watered down further," the official said.
He added that Malaca=F1ang "made its position clear to the DOF [Department =
of
Finance]" last week through channels other than Secretary Juanita Amatong.
"Basically, DOF people were told that it was a decision of the economic
managers in
Malaca=F1ang," the official said.
Because of this, the DOF had to shelve its "aggressive version" of the
controversial
tax proposal which called for biannual indexation, reclassification and the
30-percent initial tax rate adjustment.
"DOF was told to go only for the indexation adjustment and at a lower
rate at that,"
the official said.
In a separate interview, Amatong said the new rate means that government
can only
expect a maximum of P7 billion in fresh taxes each year from the new
tobacco and
alcohol taxes instead of the P14 billion which the Arroyo administration
had first
hoped for.
Passed in the present form, the excise tax bill will stymie government
efforts to
raise P80 billion in fresh taxes yearly, which it needs to balance its
budget by
2010.
It will also require the Executive branch to return to Congress in three
years for
another tax rate adjustment, unlike the original bill which would have
made rate
adjustments automatic as determined by the annual inflation rate.
The source complained that the House bill based the tax computation on
the suggested
retail price of cigarettes as opposed to the present practice of basing
it on
supermarket retail prices as surveyed by the Bureau of Internal Revenue.
This means that manufacturers can claim lower suggested retail
prices-despite wide
disparities with actual selling prices-resulting in sharply lower tax
revenues for
the government.
"Any vagueness in the law is something we disagree to," another DOF
official said.
Pressed by reporters for comments on Tuesday, Amatong hesitated when
asked whether
she will push for a restoration of the original indexation rate.
She later conceded that she is "satisfied" with Congress's decision to
lower the
indexation rate to 20 percent since it represented the cumulative level
of inflation
from 2001 to 2004.
Other Finance officials familiar with the Executive branch's
negotiations with
Congress said efforts will be made to "correct" the bill's "deficiency"
either in
the Senate or in the Bicameral Conference Committee.
Even if this fails, however, the government may still escape a crippling
ratings
downgrade from international credit watchers if it manages to convince
investors
that the excise tax bill is "a step in the right direction, disappointments
notwithstanding," one official said, requesting anonymity.
"At the very least, we'll get more time to fix our finances," he added.
------------------------------------
http://www.abs-cbnnews.com/NewsStory.aspx?section=3DNational&OID=3D62295
BIR study: Tax formula cocktail gives top yield
- R. de la Cruz
The government could generate maximum tax revenues on the sales of
cigarettes
through a combination of reclassifying the brands of the sin products
and indexing
excise tax rates to inflation, a study of the Bureau of Internal Revenue
(BIR)
shows.
The study said that House Bill 3023 filed by Kabalikat ng Malayang
Pilipino Rep.
Hermilando Mandanas of Batangas would generate the highest additional
revenues of
P19.8 billion if implemented. This is higher than the P11.3 billion
expected to be
generated from adopting HB 194 of House Speaker Jose de Venecia Jr.
Mandanas's bill, which seeks to amend Section 145 of the National
Internal Revenue
Code of 1997, provides for the retention of the specific tax system and the
reclassification of cigarette brands into two brackets.
The reclassification of brands, the study said, would eliminate the bias
in favor of
existing brands, increase tax collection, eliminate distortion in market
demand,
level the playing field for all players and address the declining tax
collection
effort of the BIR.
At present, cigarettes are classified into four price categories-low or
those that
cost P5 a pack, medium or P5 to P6.50 a pack, high or P6.51 to P10 a
pack, and
premium ,or those costing at least P10 a pack.
De Venecia's HB 194, the preferred version of the administration, also
seeks to
scrap the classification of brands, adjust the existing tax rate by 25
percent and
then index the excise tax on cigarettes to inflation.
BIR Deputy Commissioner Kim Henares said the study was made "only to guide"
legislators in crafting their proposed bills. The bureau's official
position remains
the one endorsed by the Department of Finance, he said.
"There was an agreement that the economic team of the administration
will take the
position of the DOF regarding the proposed tax measures," Henares said.
The DOF recommended a 22.6-percent increase in specific tax rates for
alcohol and
tobacco or the sin products from their 1997 levels, excluding the rate
adjustment in
2000. It also called for the indexation and reclassification of sin
products once
every two years.
Henares said the BIR study only provided potential revenue figures based
on the
bureau's own computation, but did not factor in administrative matters
that may
affect the actual collection.
The department has included the indexation of excises taxes on
cigarettes on the
list of eight proposed tax reforms that it wants Congress to act upon to
bridge the
wide fiscal deficit.
For its part, the National Economic and Development Authority (NEDA)
said the
passage of the bill on the indexation of sin taxes serves as the foreign
creditors'
"litmus test" on the government's resolve to approve measures that will
improve its
fiscal position.
At least seven other proposed bills in Congress recommend tax adjustments o=
n
cigarettes.
At the same time, the study warned that if the two measures were not
adopted, the
government will face recurring administrative and fiscal problems after
a few years
of initial implementation.
Socioeconomic Planning Secretary Romulo Neri, concurrently NEDA director
general,
said that with the passage of the indexation of tax on sin products, the
approval of
the other seven other revenue bills will come in much easier.
Neri noted that the indexation of sin taxes is the most important from the
government standpoint because it is closely monitored by both foreign
creditors and
credit- rating agencies.
He predicted that once the bill is passed, the country will get at least
a 50-point
or 100-point reduction, or a better outlook for the country.
"That can translate to savings between P10 and P20 billion for us in
terms of
reduction in interest payments, including the additional revenues it
will bring. If
we include the side effects of domestic interest payments, maybe we can
save up to
P30 billion in terms of lower interest cost," Neri said in a statement.
The administration has identified eight major measures to generate about
P80 billion
in additional revenues a year. Besides the indexation of sin taxes,
these include an
increase in the excise tax on petroleum, rationalization of fiscal
incentives, tax
amnesty, a performance-based lateral attrition for government agencies,
a two-step
increase in the value-added tax rate, imposition of franchise tax on
telecommunications companies and a shift from net to gross income taxation.
The government predicted that four of the eight bills would be
prioritized this
year. These include the indexation of sin taxes to inflation, tax amnesty,
rationalization of fiscal incentives and lateral attrition.
The combined implementation of the four measures is expected to yield
P25 billion to
P35 billion a year.