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MANILA, Philippines - Tobacco tax collections fell by a fifth in 2011, with the Department of Finance (DOF) blaming the drop on "structural flaws" in the sin tax law.
In a statement, the DOF said sin taxes fell from P31.5 billion in 2010 to P25.4 billion last year.
"This fall in revenues proves that our current excise tax scheme for tobacco is structurally flawed, and is in need of immediate changes," said Undersecretary Jeremias Paul.
"Although PMFTC has claimed that nothing is wrong with our sin tax system, the figures show how vulnerable this system is to being abused," Paul said, referring to Philip Morris Fortune Tobacco Corp., which is blocking a legislative measure aimed at reforming Republic Act 9334 or the Sin Tax Law.
PMFTC insists the current law needs no reform, citing the 31 percent increase in sin tax collections in 2010.
"Actually, our collections since 2004 have been badly see-sawing because of a practice of tobacco companies called 'front-loading.' Before revenues rose in 2010 and 2008, they fell by 13 percent in 2009, and 12 percent in 2007‚ the years when taxes were raised. This is the worst fall yet for our tobacco sin tax revenues. It's a telltale sign that the system is structurally defective. That's why we need the Abaya reform bill to fix this," said Paul, referring to the bill introduced at the House by Cavite Rep. Joseph Abaya.
Front-loading has been rampant since 2004 because RA 9334 prescribed small tax increases on tobacco products every two years, leading companies like PMFTC to concentrate their sales between the application of these higher, though tiny, tax rates.
This, in turn, has permitted tobacco firms to avoid having most of their sales bear the full weight of heightened excise levies. Combined with other well-known flaws of the present sin tax law - such as a multi-tiered system that protects old brands at 1996 tax rates and non-indexation to inflation - the current tax structure has failed to foster a fiscal environment of fair competition and buoyant tax revenues, the DOF said.
"Unless the Abaya sin tax bill is passed, our country will continue to bleed billions of pesos in government funds, which could have been used for improving the lives of our fellow Filipinos‚" said Jo-ann Latuja, senior economist of Action for Economic Reforms.
The DOF said at least P19.5 billion in revenues has been lost from 2006 to 2010 due to cigarette consumption that has merely downshifted from higher to lower-priced brands - a trend which the current multi-tiered system has encouraged.
Moreover, as the present regime still allows most smokers to switch to cheaper products, instead of quitting outright, it has been unable to stem rising levels of tobacco use among Filipinos.
"The numbers are just indisputable: the Abaya reforms are vital to fixing this faulty tax system, while lessening consumption of the number one cause of death in our country today. If this bill is not passed, the revenue losses could be the least of our concerns, since a health crisis is already brewing in our midst that endangers the young and poor populations of our country," Latuja said.
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