After 15 years, sin tax bill hurdles Senate

MANILA, Philippines (3rd UPDATE) – The sin tax reform bill hurdled the Senate on Tuesday, November 20, bringing the measure that took 15 years in the making a step closer to becoming a law.

Voting 15-2, the Senate approved on third and final reading Senate Bill 3299 or the bill raising the excise taxes on so-called sin products -- tobacco and alcohol.

The bill, however, will raise P39.5 billion additional revenues for government in the first year, slightly lower than the P40-billion "floor" targeted by the Aquino administration. The decline in expected revenues came about after senators introduced amendments to the bill.

"I’m pleased to announce that we have passed on second and third reading the sin tax bill," said the bill's sponsor, Senate ways and means committee chair Senator Franklin Drilon.

"After much negotiation, we agreed on a 3-tier system for taxes on cigarettes. We will maintain a 60-40 burden-sharing between cigarette and alcohol... there will be a unitary rate of P26 (for cigarettes) at the start of the 5th year," he added.

The passage of the bill nevertheless represents another milestone for the Aquino administration.

President Benigno Aquino III used his popularity and flexed his political muscle to get the bill passed, the first time in 15 years a sin tax bill made it out of Senate committee meetings. The Senate approved the bill after Aquino certified it as urgent, and made it a priority.

“We commend the unshakable commitment of Senator Franklin Drilon who saw this important piece of legislation through this long, drawn out process, and all the senators who voted for the measure. We also thank the countless advocates in government and civil society for staying the course and keeping faith in this crusade,” the Palace said in a statement.

Once enacted, the measure will raise the prices of cigarette and liquor products, addressing a stigma that the Philippines has one of the cheapest sin products in the world, owing to a strong lobby from politically-connected industry players.

The measure will also generate revenues that will go to Aquino's universal health care program and programs that will help tobacco farmers shift to other crops.

“The approval of the measure in the upper chamber is a vital step forward in improving and expanding public health safety nets for all Filipinos,” noted the Palace.

Although lower than the Palace's target, the revenues are higher than the P31 billion approved by the House of Representatives in June.

The Senate and the House will now go into the bicameral conference committee to reconcile their versions.

Amendments

The 15 senators who voted to pass the bill are: Senate President Juan Ponce Enrile, Senators Ferdinand Marcos Jr, Jinggoy Estrada, Vicente Sotto III, Drilon, Pia Cayetano, Lito Lapid, Aquilino Pimentel III, Teofisto Guingona III, Loren Legarda, Bong Revilla, Gregorio Honasan II, Manuel Villar Jr, Ralph Recto and Panfilo Lacson.

Senators Francis Escudero and Joker Arroyo voted against it.

Escudero sought to explain on the Senate floor that he wanted to be consistent in his stand opposing any tax increase.

“I’ve been with Congress for the past 15 years, 9 years in the House and nearly 6 years in the Senate. I’ve always voted against any increase in taxes given that I’m of the firm belief that we have not exhausted all measures at collecting existing taxes efficiently,” Escudero said. 

Arroyo earlier said he is against the lump sum appropriation of P40 billion, noting the bill did not detail the expenditure program of the P40 billion for health care. The senator also said the bill should not be approved just because the Palace said so.

Drilon, Enrile, Recto and Marcos, meanwhile, introduced amendments to the bill.

Drilon reduced the tax rate for distilled spirits and increased the number of tax tiers for cigarettes to 3. He also changed the rates that will be imposed on cigarettes packed by hand and machine.

Enrile inserted a provision requiring manufacturers and sellers of tobacco products to source at least 15% of their raw materials like Virginia tobacco leaves locally.

Recto, for his part, proposed that P23 billion of the additional sin tax revenues be released directly to the Philippine Health Insurance Corp (Philhealth).
 
The final revision was made on the unitary tax rate to be imposed on cigarettes by the 5th year of implementation, which is now down to P26 per pack from the original P32. It is not clear who introduced this amendment.

Drilon said, "We would have wanted P30 but the reality is this is a collective body and we tried to get the vote of our colleagues and this is the sweet spot we were able to find at P26. A higher unitary tax is desirable but the reality is we have to submit this to the collective wisdom of our colleagues."

The senator said the bill will collect the following revenues on a per-year basis:

The approved bill has the following tax rates for alcohol:

Distilled spirits

Fermented liquors

The approved bill has the following tax rates for tobacco:

For hand-packed cigarettes: 

For machine-packed cigarettes:

For those levied a tax of less than P7.56 in 2012, the new rates are as follows:

For those levied a tax of P7.56 but less than P12:

For those levied a tax of P12 or more:

Drilon earlier said the Senate improved the House version by adding an important feature in SB 3299 -- the unitary tax rate for all cigarette brands by the 5th year. The House version seeks to impose two tiers for tobacco products.

Another improvement from the House version is the yearly percentage increase in tax rates. The Senate bill proposes a 5% increase in tax rates every year starting 2014 for alcohol, and 2018 for cigarettes. The House version, on the other hand, proposes an 8% increase every two years from 2015 until only 2025.

Bicam committeee

Drilon could not yet say when the Senate and the House will convene the bicameral conference committee but assured the public the President will receive the reconciled version by the end of the year.

He said he does not expect difficult discussions on the cigarette rates because there is not much difference in the revenues that the House and Senate versions will raise.

“Therefore that is P26 billion. So we’re talking about the difference between the P5 billion total liquor in the House as against our P14 billion so that is where the substantive discussions will be.”

Drilon explained further, “The rates on the liquor are different. Theirs is different, distilled and fermented so that’s it but in so far as the taxes are concerned we’re almost alike.”

Debates

The approval of SB 3299 comes after heated debates in past sessions at the Senate and controversy that prompted a change in the Senate ways and means committee leadership.

Drilon and his allies defended the bill, saying it will not only increase government revenues, but also discourage the poor from consuming tobacco and alcohol products, reducing the incidence of diseases associated with these.

But Recto and Marcos, among the senators who opposed the bill, argued it will displace tobacco farmers and exacerbate smuggling.

“There’s a saying, ‘Don’t kill the goose that lays the golden egg.’ The government already collects a lot of money from the tobacco, alcohol industry. If they drastically change the system, this will destroy their source of revenues,” Marcos, who hails from the tobacco-growing province of Ilocos Norte, said last week.

Drilon became acting chairman of the Senate ways and means committee after Recto resigned from the post. Recto stepped down after drawing flak for sponsoring a “watered-down” version that sought to raise only P15 billion to P20 billion in revenues.

A member of Aquino's Liberal Party, Recto's fate was similar to that of former House ways and means committee chair Batangas 2nd District Rep Hermilando Mandanas. Reports quoting administration sources said Mandanas was ousted from the ways and means chairmanship due to differences with the Aquino government on sin taxes. His refusal to sign the impeachment complaint against former chief justice Renato Corona was the final straw that severed his ties with Aquino, the same reports added. Mandanas bolted out of the Liberal Party.

Not just revenue, but also health

The sin tax bill is the only revenue measure that the Aquino administration had certified urgent so far in its term.

The bill is very important to Aquino because it is key to attaining the Philippines' first investment grade status. Credit ratings agencies such as Moody's, Fitch Ratings and Standard & Poor's are awaiting the passage of the bill as they said it will give the Philippines a revenue boost that will allow it to further improve its fiscal position.

However, beyond being a revenue measure, Drilon branded the bill as “the single most important health policy legislation in the past decade.”

It aims to address the Health Department’s P24 billion funding gap, and increase enrollment of the poor in Philhealth.

“Right now, the budget funds the enrolment of 5.2 million families who are in the lowest quintile. The proposal is to add another 5.2 million families but that won’t be possible unless we pass the sin tax. There will be no additional enrollments, no additional repair of hospitals, if sin tax is not passed,” Drilon said in past interviews.

The Health Department, anti-tobacco and medical groups have rallied behind Drilon’s bill.

Tobacco farmers and workers protested the measure and warned they will campaign against reelectionist senators who voted to pass it. – Rappler.com