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MANILA, Philippines – Higher sin taxes are unlikely to put a dent on jobs in the tobacco industry, according to the International Monetary Fund (IMF).
In a report, the IMF said it was supporting the adoption of a unitary tax system and indexation of excise taxes to inflation, the same proposal contained in the Palace-backed House Bill 5727.
“Even when worldwide tobacco taxes increase, they are unlikely to have a significant impact on tobacco dependent employment in most countries,” the IMF said.
“Some argue that the tax increases will result in job losses, noting that many are employed in tobacco growing, manufacturing and distribution. However, many of the jobs that are counted in estimates of the economic contribution of tobacco are far from dependent on tobacco, but rather involve tobacco in some limited way, often indirectly,” the lender said.
The IMF also ruled out any reduction in jobs that “can be considered truly dependent on tobacco.”
These jobs range from farming to leaf drying and warehousing.
“When it is argued that higher taxes on tobacco products lead to employment losses, this argument ignores the fact that shifts in spending away from tobacco products generate new employment in other sectors, with the net impact generally positive,” the lender said.
It said falling domestic demand usually leads to higher exports of tobacco.
“So it seems unlikely that tobacco farmers would be very adversely affected by increases in tobacco excises,” the IMF said.
As for liquor, the Iender said reform should be pursued to abide by a recent ruling of the World Trade Organization (WTO), referring to the US and EU success in having the global body rule against the Philippines’ higher taxes on imported spirits.
Overall, excise tax reform is needed to address the drop in the share of tobacco and liquor duties, which fell from 2.6 percent of gross domestic product (GDP) in 1997 to 0.8 percent in 2010.
The Department of Finance expects a P60 billion windfall should Congress pass HB 5727, with a large part of that amount going to the government’s universal health care program.
“These additional investments in rural health care units and professionals will not only improve our health outcomes, but will also have a multiplier effect in employment, not just in Northern Luzon, but in Central and Southern Luzon, Visayas and Mindanao,” said Bureau of Internal Revenue Commissioner Kim Jacinto-Henares.
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