The controversial two-tier House Bill No. 4144 is pro-revenue, a UP-Manila Economics professor said Friday.
“There is a need to modify the existing unitary tax system to a two-tier approach to preserve revenues derived from low-income consumers who constitute the bulk of cigarette consumption,” Dr. Ernesto Gonzales said.
The London School of Economics-educated economist cited the concept of price elasticity, where the rich sector of society is less responsive to price increases than low-income consumers.
“A unitary system is inequitable because it essentially makes the poor or low-income sector devote a higher percentage of their income to paying the tobacco tax than higher-income individuals who can actually afford to do so,” he said.
“Besides, a unitary system impedes on consumers’ freedom to choose a product that suits his level of income,” Gonzales said.
He cited that the demand for cigarettes is omnipresent and one of the easiest ways for a government to drive in revenues is to “fine” smokers by way of taxation.
A study by Dr. Dahlia Remler, an expert on the issue health economics at Harvard University, said cigarette taxes were found to be regressive for two reasons.
Sales tax are generally regressive because the rich save and invest a large portion of their income than the poor, and so the poor spend a larger share of their income on consumption.
Second, since the prevalence of smoking is higher among the poor, cigarettes are in fact disproportionately consumed by the poor.
The two-tier approach will lessen the impact of the regressive tax as it tends to approximate the tax imposable to taxpayers based on their respective income levels.
The International Monetary Fund said “ultimately, tobacco excise tax rates must reflect the purchasing power of the local consumers, rates in neighboring countries, and above all, the ability and willingness of the tax authority to enforce its compliance.”
Fr. Joaquin Bernas said in a commentary on the 1987 Philippine Constitution that the explicit mention of progressive tax reflected the wish of the Convention that the legislature, following the social justice command, should use the power of taxation as an instrument for a more equitable distribution of wealth.