Senate Ways and Means panel unveils its own sin tax measure for plenary scrutiny and approval

MANILA, October 10, 2012-The Senate Committee on Ways and Means has finally presented for plenary consideration its own version of the restructured sin tax measure, adjusting the excise tax rates slapped on cigarette and alcohol in the hope of lowering consumption while yielding fresh revenues to expand the country’s healthcare programs.

Committee Chair Sen. Ralph G. Recto said their committee report was the fruit of exhaustive consultations with stakeholders, other affected sectors and a product of collaborative effort with the academe, Civil Society and finance department (DOF).

“We will be recommending a Senate version to the plenary and we are open to amendments from our colleagues considering the limited time we had because of the impeachment,” Recto said.

He said the Committee had only two months to deliberate and study the original DOF-sponsored bill, House Bill (HB) 5727 as passed by the House and Senate bills on sin taxes filed by Senators Panfilo Lacson and Miriam Defensor-Santiago.

Recto said: “All told, our Committee Report predictably and responsibly could generate in the first year between P15 billion to P20 billion."

He said the new tax regime on cigarettes could yield between P9.8 billion to P14.8 billion in additional revenues while alcohol would contribute by as much as P5.2 billion to P7 billion in the first year or in 2013.

“Whereas, the House version – HB 5727 -  based on the Committee’s appreciation of the data and on the many “runs” or revenue scenarios conducted by DOF in the TWG, would result to a loss of P300 million or a gain of P11.5 billion for both cigarette and alcohol,” Recto said.

The senator said the original Palace version that was submitted to the Lower House – again based on his appreciation of the assumptions- would redound to a loss of P5.314 billion or a gain of P7.4 billion based on the “runs” conducted by the DOF.

Below is the summary of the highlights of the Recto panel’s Committee Report:

- In revamping the tax on tobacco, a 52 percent increase in the tax rates during the first year will be imposed;

- Those in the first tier or low-priced class will absorb an increase of 121 percent from P2.72 to P6 per pack;

-   This tax formula is seen to generate anywhere between P10 billion to P15 billion in tobacco taxes, which is “predictable, recurring and fair to all stakeholders;”

-   Will result to a decrease in smokers by 8 percent on the average and possibly more from D and E classes;

-   Senate proposal is much lower than the P2.72 to P14 (first year) or the P2.72 to P30 tax hike that the DOF wants, “which to my mind will redound to a loss of P10.3 billion and a gain at best of P2.2 billion as found in the original Palace version;”

 -    With respect to alcohol, the Committee concurs with the House version as to the need to temper increases which will hike revenues between P5.2 billion to P7 billion;

-          For both cigarettes and alcohol, the Committee agrees with the Palace and DOF in removing the price annexes; mandating increases in tax rates and indexing it to inflation;  increasing the same every two years; and, allowing for re-classification and free competition;

-          After the series of biennial adjustments, the Committee projects that by 2020, there will be two tiers for tobacco taxes and two tiers for fermented liquor; and,

-       Our version was designed not to promote smuggling and illicit trade as warned by experts.

“We’re open to amendments for a single tier,” the Senate ways and means chair nevertheless said.

Recto said pursuant to government’s priority program to expand healthcare services, the Committee proposes to earmark 50 percent of the total proceeds of the law or roughly about P33 billion for the health sector. 

Of the 50 percent, about 40 percent or P26 billion will go to finance the expansion of the universal health coverage of the Philippine Health Insurance Corp. (PhilHealth) benefiting 10.4 million families while the balance of 10% will be divided equally to DOH regional hospitals and to district hospitals operated by local government units.

Under this sharing scheme, each of the existing 16 regional hospitals will receive P200 million while each of the 618 district hospitals will be entitled to P5.25 million per year.

Recto said the earmarking under existing laws such as Republic Act (RA) 7171 shall remain.

He said on top of these mandates, some P100 million from total sin taxes will go to fund a yearly nationwide public information and education campaign on the dangers of smoking and drinking to be administered by the DOH.

“To those who would quickly label our proposal as a watered-down version, this isn’t. We just hosed down promises of windfall tax revenues that were based on wrongful assumptions,” Recto said.