IGNORING the protest of tobacco farmers that the passage of the amended sin tax bill was being railroaded, the House committee on ways and means, in its second hearing Monday, unanimously approved the measure that would shift back to two-tier structure from unitary tax system and increase the tax rate to P32 and P36 per pack beginning next year instead of the unitary P30 a pack.
Voting 26-0, the panel members expressed reservations and described the bill as “regressive” but voted yes, anyway, in the presence of the House leaders, who were full force in tightly guarding the proceedings.
The protest of tobacco farmers belonging to PhilTobacco Growers Association and Philippine Aromatic Tobacco Development Association representing 50,000 tobacco farmers across the Philippines, fell on deaf ears even if they insisted that they wanted to be heard of their opposition to the bill since they were not made to appear during the first hearing.
The first hearing was held on November 28, without the farmers present, and the second hearing pushed through on Monday with the panel, chaired by Quirino Rep. Dakila Carlos Cua, promising that a committee report will be immediately transmitted to the plenary so that the bill will be passed and be made effective January 1, 2017, when the unitary tax was supposed to be implemented and for the law to mature.
Several lawmakers suggested that further public consultations be made to ensure that House Bill 4144, which seeks to introduce a big increase in tobacco Sin Tax and was authored by ABS Rep. Eugene Michael de Vera would serve the interest of the poorest of the poor.
“This proposed measure is regressive as studies show that 4.76 percent of the income of the one percent of the poorest of the poor goes to buying cigarettes while only 0.5 percent of the income of the rich goes to procure the same,” Albay Rep. Joey Salceda said. “The poor will be hit hard most.”
Nueva Ecija Rep. Estrellita Suansing expressed apprehension about the reports on tax evasion by cigarette companies and the purported illicit trade like smuggling and the panel could not provide “empirical data” on such incidents.
De Vera insisted with the uniform excise tax rate, consumers would prefer to buy high priced cigarettes because the price disparity between the high priced and low priced cigarettes would be minimal.
“Imbued by competition, cigarette manufacturers may also opt to import tobacco leaves instead of purchasing the locally-grown tobacco leaves considering that tobacco leaves grown abroad are of better quality, thus diminishing the demand for tobacco leaves produced domestically especially for the lower grade tobacco types. These lower classified leaves comprises of 20 percent to 30 percent of the leaves in one single stalk of cigarette,” De Vera pointed out.
Siquijor Rep. Ramon RAV Rocamora disputed De Vera’s claims and said the tobacco leaves exports showed a significant increase from P3.4 billion to P10.5 billion last year alone.
After two hours of debate, the panel put the issue to a vote. During the entire proceeding, the majority whip House Majority Leader Rodolfo Farinas was present, along with almost all of the House Deputy Speakers.
The minority was represented by House Deputy Minority Harry Roque, who also grilled the author but left the hearing before the voting was held.
Suansing insisted that she did not see that De Vera’s bill amending the sin tax law Republic Act 10351, which was enacted as a health measure, would not pass off as another health measure since it talked only about raising taxes.
“The incremental revenue is expected to increase even more with a much higher excise tax rates, which may be used to fund more social and vital infrastructure projects of the national government,” De Vera defended.
De Vera maintained the bill aims to discourage smoking at the same time that it raises revenues.
“This bill is being rammed through Congress and we have never been asked for our opinion. The whole process is a sham and we call on the leadership of the House to seek proper consultation and a complete impact assessment before proceeding with it,” according to Saturnino Distor, PTGA official. “We were not consulted.”
Distor said the PTGA and the Philippine Aromatic Tobacco Development expressed their complete opposition to House Bill 4144.
With not much protest from the lawmakers, the panel approved the two-tier tax that increases the tax on cheaper brands to P32 a pack and P36 for high-end brands.
The proposal also included an annual increase of five percent on these rates as against the current Sin Tax on tobacco (Republic Act 10351) that sees a unitary rate of P30 per pack in 2017, with an annual four percent adjustment thereafter.
The present law imposes a tax of P25 per pack on cheaper brands with net retail price of P11.50 and a tax of P29 per pack for brands that sell at more than P11.50 a pack.
Mighty, a Chinese-Filipino owned cigarette company that sells cheaper brands, pushed for the passage of the De Vera bill.
Philip Morris, a multinational company that sells the high-end brands worldwide, is opposing it and backs the existing Sin Tax Law that will implement the unitary tax next year.
Mighty hired Philip Sigfried Fortun as lawyer and former National Economic Development Authority director general Romulo Neri as spokesman.
During the hearing, Neri said the bill would address an “inequitable situation” as cigarettes for the rich will be taxed higher.
Neri was given more time to speak than the tobacco farmers.
The bill was passed despite all government agencies opposing the measure. Those who opposed vehemently were the Department of Finance, Department of Health, Bureau of Internal Revenue, National Tax Research Center, – and advocacy groups Action for Smoking and Health, Action for Economic Reform and Philippine College of Physicians.
The National Tobacco Administration has no objection to the bill.
“Tobacco farmers are struggling with falls in demand for tobacco because of the huge 340-percent excise tax increases introduced in 2013, with annual compound increases of 20 percent or more ever since worsening the situation,” Distor said.
Distor said tobacco excise taxes contributed around P100 billion in 2015, up from P32 billion in 2012, and were now more than two-thirds of the sin tax take.
“We are giving more than our fair share of the contribution,” Distor lamented.
The DOF opposed a two-tier excise tax structure on cigerattes, saying it will encourage “downshifting.”
“A unitary structure is simple to administer, tax differentiation is not germane to sin taxation, harmful effects of high priced and low priced cigarettes on poor is the same,” according to DOF Undersecretary Bayani Agabin.
Agabin said the farmers continue to benefit from earmarked funder under RA 10351 and that the tax should be allowed to mature.
The DOH, represented by Dr. Joyce Ducusin, echoed the DOF’s arguments and insisted the amendment is premature since full implementation of RA No. 10351 will start in 2017.
The NTRC maintained RA No. 10351 should implement the first unitary system before any amendment is to be made on the law.
It said unitary is preferred over two-tiers as it simplifies tax administration and prevents misdeclaration or under-declaration and will level playing field and promote competition.
The NTRC cited countries with successful single tier cigarette tax: Malaysia, Thailand, Singapore, Cambodia and Myanmar.
The BIR opposed a two-tier structure to fully achieve health objective. It said the unitary system improves tax administration and resolves issue of downgrading.
While all industry players and government representatives were asked to submit their respective position papers, comments and data on market share and volume of imported and domestic leaf purchases during yesterday’s hearing, these were no longer tackled.
The NTRC was asked to provide a study on the impact of a two-tier system, which was not also discussed.
The DOF and BIR were asked to provide data on illicit trade, alleged counterfeiting of stamps and manufacturers’ leaf purchases.
The government agencies asked for more hearings to discuss the “empirical data” on the impact of the amended bill.
They were overruled by the panel.
In the end, all lawmakers voted in favor of the passage of the bill.
The bill has no counterpart measure in the Senate yet.