DOF: Bill imposing 2-tier tax on cigarettes won't benefit farmers

MANILA, Philippines – The Department of Finance (DOF) is "strongly" opposing the measure seeking to impose a two-tier excise tax structure for cigarettes, saying the proposed House bill will not effectively address the woes of tobacco farmers.

On Monday, December 6, the House committee on ways and means chaired by Quirino Representative Dakila Cua voted 26-0 in favor of House Bill (HB) Number 4144, which is seeking to amend Section 145 (c) of the National Internal Revenue Code.  

The measure is proposing that a pack of cigarettes with a net retail price of P11.50 and below have an excise tax of P32, while cigarette packs that cost more than P11.50 be taxed P36. 

The bill was approved by the House panel after only two committee deliberations on November 28 and December 5.

HB Number 4144 is essentially aiming to block the full implementation of Republic Act Number 10351 or the landmark Sin Tax Reform Law of 2012 passed under the Aquino administration.

It mandates that a unitary tax rate of P30 be imposed on all cigarette packs – regardless of price – by 2017. (READ: Bloomberg lauds PH for sin tax law

For the benefit of farmers?

In his explanatory note, bill author and Arts Business and Science Professionals Representative Eugene De Vera acknowledged that the aim of the unitary tax rate on cigarettes is to level the playing field in the cigarette industry and to promote competitiveness.  

He said that concerns have been raised that a unitary tax structure “would displace more local tobacco farmers especially those situated in Northern Luzon.” 

“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,” said De Vera. 

“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 such as Grade D, E, F-1, F-2, and R. These lower classified leaves comprise 20% to 30% of the leaves in one single stalk of cigarette,” he added. 

The DOF, however, refuted De Vera, saying that “social equity and social justice” for the farmers must be done not by changing the excise tax rate but by properly allocating the budget.

“If indeed farmers are at risk, the Department of Agriculture, National Tobacco Administration, and host local government units should have used the earmarked funds intended for tobacco farmers as provided in the law,” said the DOF in a position paper submitted to the committee. 

The department also argued that RA 10351 allows tobacco farmers to get their shares from the proceeds from sin taxes.

“About 15% of the revenue proceeds from the reform under RA 7171 and RA 8240 continued to be allocated to the host local government units for the betterment of tobacco farmers. Therefore, tobacco farmers should have benefitted from the Sin Tax Reform, contrary to claims,” said the DOF. 

The DOF added that based on the Department of Budget and Management’s Local Budget Memoranda 72 and 73, tobacco farmers should have received “signficant” increased shares from earmarked revenues, from P5.6 billion in 2014 to around P10.7 billion in 2015. 

“The exploitation of the industry through farmgate prices of tobacco leaves is perhaps a more and bigger threat to tobacco farmers,” said the DOF, saying this had been expressed by farmers themselves in various stakeholders’ consultations. 

After hurdling the committee level, HB Number 4144 may now be sponsored for debates at the plenary level.

Bill won't stop smoking?

According to the DOF, the tax differentiation is also “not germane” to the principle behind RA 10351, which the department described as a “health measure” with a primary goal of curbing tobacco, particularly among the youth and the poor. 

“Cigarettes are all harmful regardless of their price and form. The principle behind unitary taxation for cigarette products is that the ills that these producs cause to the general public, whether through first- hand or second-hand or third-hand smoking, are no way different between a low-priced and a high-priced brand,” said the DOF.

The department also argued that cigarettes should not be made more affordable through a two-tier tax differentiation, given their ill-effects on health. 

“A two-tiered structure only promotes downshifting and therefore does not fully discourage tobacco consumption,” said the DOF.

The DOF added that HB Number 1444 would give tobacco companies incentives to “employ pricing strategies in order to stay within the lower band, resulting in the continued access to low-priced cigarettes.” – Rappler.com

Mara Cepeda

Mara Cepeda writes about politics and women’s rights for Rappler. She covers the House of Representatives and the Office of the Vice President. Got tips? Send her an email at mara.cepeda@rappler.com or shoot her a tweet @maracepeda.

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