Senate panel: Is ad valorem tax better for sin products?
(Updated 6:12 p.m.) The ad valorem tax may be more appropriate to impose on cigarettes and alcohol products, according to the Senate ways and means committee, but officials of the Aquino administration argued it is not a practical form of taxation from the government's point of view.
Senate President Juan Ponce Enrile said the ad valorem tax, or according to value, makes make tax imposition more “equitable” on all players in the tobacco industry.
“Para wala nang usap-usapan, mag ad valorem na tayo,” Enrile said during the first committee hearing on the six tax bill for tobacco and alcohol products.
“And then we handle the administrative problem,” Enrile noted, citing possible “administrative” problems – illegal smuggling and the negative impact on local industries – once the tax is imposed on cigarettes and alcohol products.
Ad valorem tax is based on the assessed value of a product.
“Ad valorem is a percentage,” said Sen. Ralph Recto, chair of the Senate ways and means committee.
“All sin products, say, with whatever that number, ay pantay pantay lahat,” Recto said, arguing for the ad valorem tax.
The House version of the bill would increase the price per pack of cigarettes costing P11.50 to P23.50 during the first year of its implementation while products costing P11.50 and above will be sold for P31.80.
Different rates would be imposed alcohol products based on type – distilled spirit, wine, or fermented liquor.
Finance Secretary Cesar Purisima, however, argued the ad valorem tax would be “impractical” since tobacco and alcohol products are sold at varying prices in many stores across the country.
“It’s hard to figure out what’s the actual price for a particular transaction,” the Finance chief noted.
“So it’s hard to collect at the end… Purisima told GMA News Online at the sidelines of the hearing.
“Rather, it’s better to collect at the manufacturer level where the products are concentrated in the supply chain,” he added.
Bureau of Internal Revenue Commissioner Kim Henares echoed Purisima’s position, saying the ad valorem tax would be difficult to collect since cigarettes and alcohol products are sold in sari-sari stores – neighborhood store.
“In reality, are we able to tax the sari-sari store?” said Henares. “If we have one million outlets, do you mean a million people would monitor all of them?
“We don’t have a million people. We only have 12,000 people in the BIR. So what do we do?” Henares told GMA News Online in a separate interview also at the sidelines of Thursday’s hearing.
The country currently has 700,000 sari-sari stores, Recto noted.
The ad valorem tax remains “a fair system for everybody,” said Recto, noting that government turned away from ad valorem tax in 1990 “because it is hard to administer.
“We decided in the 1990s to move away from that to specific [taxation],” the senator noted.
“That’s why you have such a system in place where you have tiers, you have specific rate, and you have the annex to mimic the ad valorem with a specific type of taxation,” Recto added.
The house version indexed HB 5727 or “An Act Restructuring the Excise Tax on Alcohol and Tobacco Products” or the sin tax bill, aims to increase taxes on tobacco and alcohol to generate government income amounting to P60 billion.
The current sin tax law or Republic Act 9334 imposes a multi-tier taxing system – progressive tax rates are pegged at 1996 price levels for manufacturers who entered the industry before 1996.
Two-tier tax system
Two-tier tax system
The sin tax reform bills enforces a two-tier tax system where all industries regardless of date of entry are taxed unitary rates.
The Senate currently has four bills restructuring the multi-tier taxing system on tobacco and alcohol – SB 2763 and 2764 by Sen. Panfilo Lacson and SB 3249 and 2998 by Sen. Miriam Defensor-Santiago. The bills call for a unitary system of taxation on alcohol and cigarettes.
In the Lacson Bill, cigarettes valued at P6.50 and below packed by hand are taxed P2.47 per pack and those packed by machine P8 per pack, and P14 per pack for those valued at more than P6.50.
Liquor is taxed based on alcohol content – P30 to P150 per proof liter for spirits with 45 percent alcohol, P150 with more than 45 percent alcohol, P300 tax for champagnes and other sparking wine regardless of proof, P50 for other wines, and P21.52 per liter for fermented liquor.
For Santiago’s bill, cigarettes packed by hand are taxed P14 per pack, while those packed by machine are taxed P14 for those priced at P10 and below and P28.30 per pack for those priced at more than P10.
Liquor is taxed according to alcohol content – P42 to P150 per proof liter for spirits with 45 percent alcohol, P150 to P317 for those with more than 45 percent alcohol, P300 for champagne regardless of proof, P50 for other wine, and P25 per liter for fermented liquor. — VS, GMA News