Excise tax system scored

REPORT FROM BUSINESSWORLD THE GOVERNMENT is losing at least P25 billion in annual revenues from excise taxes on cigarettes due to a legislative freeze against reclassifying the tax rates on old tobacco brands, executives of British American Tobacco Philippines, Ltd. (BAT Philippines) on Thursday claimed. Jeremy Flint, general manager of BAT Philippines, said the government’s existing tobacco excise system had the country lagging behind its Asian neighbors in terms of excise tax collection as a ratio of total government revenues. Excise taxes on tobacco products account for only 3% of the Philippines’ annual revenues, just equal that of poor Cambodia and paling in comparison with China’s 8%, Sri Lanka’s 7% and India’s 6%, Mr. Flint said. ’’The Philippines is unique in the complexity of the tax system," Mr. Flint, who was former BAT executive in Singapore and other Asian countries, said. Republic Act 9334, or the "sin" tax law, allows existing brands listed in Annex D of RA 8240 — the "sin" tax law’s predecessor — to pay excise tax rates based on their 1996 net retail prices. BAT Philippines is contesting this provision before the Supreme Court, arguing that the law has given existing brands "legislative protection," while being "discriminatory" against new brands, whose tax rates are classified according to current net retail prices, BAT legal counsel Carlos Baniqued said. "Regardless of increases in their retail prices since 1996, existing brands are not at risk of being reclassified to a higher segment and made to pay higher excise taxes," Mr. Baniqued said. BAT is the owner of the Pall Mall cigarette brand, which is locally manufactured by La Suerte Cigar by virtue of a licensing agreement. Pall Mall was introduced in the Philippine market in 2004, a year before the "sin" tax law was enacted. The P25-billion foregone revenues was based on excise tax that could have been collected from cigarette brands Marlboro, Philip Morris and Winston — all listed under Annex D — had these three brands’ tax rates been reclassified upwards given their current net retail price, Mr. Flint said. The three brands’ current net retail price, Mr. Flint claimed, are now well above the P10.01 net retail price, which could have been subject to a P26.06 excise tax per pack, had the legislative freeze provision been lifted. Marlboro and Philip Morris are currently levied only an excise tax of P10.88 per pack, while Winston, P6.74 per pack. Pall Mall’s excise tax classification as mid-priced brand, subject to a P6.35 — now P6.74 — excise tax per pack has been questioned by its competitors. — MEIC/BUSINESSWORLD