Economist Romulo Neri, a former director-general of the National Economic and Development Authority, said Monday a regressive unitary tax system will inequitably require the poor to pay a much higher percentage tax than the rich, who consumes a more expensive brand, as both will pay the same P30 tax per pack.
Neri, who held a key position in President Gloria Macapagal-Arroyo’s government, said House Bill No. 4144 aimed to correct the regressive and anti-poor provision in the current law while protecting the livelihood of poor Filipino tobacco farmers.
“In countries where tobacco use is inversely related to income, the regressivity of tobacco taxes is exacerbated. In the Philippines, the poor use up 2.8 percent of their income in tobacco consumption while the rich only 0.8 percent,” Neri said.
He said “the burden of paying the same unitary specific tax will have a much heavier impact on the poor than the rich, making even worse its already regressive nature.”
“That’s why,” Neri said, ”in EU countries, they impose two types of taxes on tobacco: a specific tax component to set a minimum floor high enough to discourage smoking and at the same time an ad valorem tax so that cheaper brands will pay less taxes than the premium brands.”
“This makes the tax system less regressive for the tobacco consumer and levels the playing field between the manufacturers of cheaper brands vis-a-vis the makers of premium brands,” he said.
A report by Southeast Asia Tobacco Control Alliance in 2015 showed that ad valorem and multiple tax systems and not unitary were the dominant mode of imposing taxes on tobacco in Southeast Asia.
Ad valorem tax is imposed in Cambodia, Myanmar and Vietnam, while Thailand, Malaysia and Laos use a mix of specific and ad valorem. Indonesia uses multiple tiers of specific taxes on tobacco. Only Singapore and Brunei practice a unitary specific tax system.
Neri said “contrary to the claim of its detractors, HB 4144 will not increase smoking prevalence since it will increase tobacco taxes an even higher rate than the previous bill which will increase the tax rates from 25 percent to 30 [20 percent increase] for the cheaper brands and 29 to 30 [3 percent increase] for premium brands.
“The bill even makes it more prohibitive to smoke since the specific tax will increase from 25 to 32 [28 percent] for cheaper brands and from 29 to 36 [24 percent] for premium brands. So if the objective is promoting health through higher tobacco taxes, HB 4144 will achieve this better.”
He said if the objective was to collect more taxes on tobacco, it would be more effective to tax even more the brands consumed by the rich as they had a low price elasticity of only 0.52 while brands consumed by the poor had a high price elasticity of 1.09.