Cigarette firm bucks ‘sin’ tax increase plan

"If the government pursues a sharp increase in excise taxes, it will push up prices, especially among the low-priced brands. Smuggling will increase exponentially," Philip Morris Fortune Tobacco Corp. (PMFTC) President Chris Nelson said in media briefing yesterday.

The illicit trade could cost the government an estimated P170 billion in revenues annually, he projected, "more than the P60 billion the government will allegedly earn every year, although that claim is unsubstantiated."

Mr. Nelson urged the Aquino administration to focus first on tax administration, as promised at the start of its term. The government should not seek to increase taxes without first guaranteeing that it was capable of collecting the additional revenues, he added.

"We offered our help to the DoF (Department of Finance) and the BIR (Bureau of Internal Revenue) since we have a tobacco tracing and tracking system. They never responded," Mr. Nelson claimed.

The assertion that higher prices would lead to a drop in tobacco consumption were rejected by Mr. Nelson, who said demand would not go down if illegal sources were available.

Reforms to the excise tax regime on alcohol and tobacco are currently being discussed by the House of Representatives ways and means committee. The leading proposal is House Bill (HB) 5727, authored by Rep. Joseph Emilio A. Abaya (1st district, Cavite) and patterned after a DoF proposal.

"We are not against the moves to reform the excise tax regime, but the tax increases must be gradual and reasonable," Mr. Nelson said.

PMFTC has backed a proposal penned by Rep. Eric G. Singson, Jr. (Ilocos Sur, 2nd district) that was shelved by the House ways and means committee.

The Singson bill retains the multiple tiers of the existing excise tax structure and prescribes tax increases every two years from 2013 to 2017. The Abaya bill, on the other hand, aims to move to a unitary tax structure and targets a more immediate schedule for tax increases.

Specifically, the PMFTC-backed measure proposed to charge cigarettes packed by hand a tax of P3 next year, increasing to P3.30 in 2015 and P3.63 in 2017. In comparison, HB 5727 pegged a tax of P14 per pack this year, increasing to P22 in 2013 and P30 in 2014.

The National Internal Revenue Code of 1997 (NIRC) currently imposes a tax of only P2.72 per pack.

Moreover, cigarettes packed by machine with a wholesale price below P11.50 will be taxed P3 starting 2013, P3.30 in 2015 and P3.63 in 2017 under the Singson proposal.

Those with a wholesale price of P11.50 to P14.95 will be levied P8 in 2013, P8.45 in 2015 and P8.93 in 2017. Meanwhile, those selling for P14.95 to P23 will be taxed P12.60, P13.23 and P13.90, respectively.

Lastly, cigarettes packed by machine sold for more than P23 will charged taxes of P29.49 in 2013, P30.73 in 2015 and P32.02 in 2017.

The Abaya bill, meanwhile, sets a tax of P10 this year to cigarettes packed by machine priced at P10 and below. This will increase to P22 in 2013 and to P30 in 2014. Those that cost over P10 will be levied a P30 tax this year until 2014.

Cigarettes packed by machine are currently taxed only P12 or P28.30 depending on the price of the pack.

Mr. Nelson denied claims made by Finance Secretary Cesar V. Purisima that the existing laws favored his company. PMFTC controls more than 90% of the tobacco market in the country after Philip Morris Phils. Manufacturing Inc. and Tan-led Fortune Tobacco Corp. merged a year ago.

"The fact that we have a high market share is not driven only by pricing but also product quality and distribution," Mr. Nelson said.

He also pointed out that the DoF even defended the current tax structure when it was questioned by competitor British American Tobacco (BAT) in 2008. BAT had argued that the structure of the NIRC -- levying higher taxes on cigarette brands that enter the market after 1996 -- was unconstitutional.

"The DoF defended that law, and the Supreme Court ruled in favor of it, 13-0," Mr. Nelson said.

Nevertheless, the PMFTC chief said he was "reasonably optimistic" that Congress would pass "something similar to the Singson proposal."

"If everyone just stands back, they will see that what the DoF and Secretary Purisima want is impossible," he said.

Malacañang has declared the excise tax reform as a priority measure. The Finance department is aiming to have a bill passed into law by June. Discussions began at the House ways and means committee yesterday.