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TOBACCO  TAX    STRUCTURE  IN  THE  

PHILIPPINES  

Gil  S.  Beltran  Undersecretary  

Department  of  Finance  

June  22,  2010  

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SUMMARY  OF  PRESENTATION  

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  Overview

 Weaknesses of Current System

  Fiscal Situation

  Conclusion

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Taxes  on  Tobacco  

2009  (PB)  Excise   P24.2    VAT  (est)  Total  

1.1      P25.3    

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Excise Tax Structure: Tobacco  

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Republic Act 9334 Brackets 2005 2007 2009 2011

Cigar: Per Cigar Net retail price per cigar is P500.00 or less 10% Net retail price is more than P500.00 P50.00 + 15% of the net retail price in excess of

P500.00 Cigarettes Packed by Hand 2.00 2.23 2.47 2.72 Cigarettes Packed by Machine, if net retail price per pack of 20

a)  Over P10.00 25.00 26.06 27.16 28.30 b) Over P6.50 but not over P10.00 10.35 10.88 11.43 12.00 c) P5.00 but not over P6.50 6.35 6.74 7.14 7.56 d) Below P5.00 2.00 2.23 2.47 2.72

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Health-Related Earmarking Provisions

  2.5.% of incremental revenues from excise tax on tobacco and alcohol for PHILHEALTH for universal coverage

  2.5.% of incremental revenues from excise tax on tobacco and alcohol for DOH for disease prevention

P900M = 2005 to 2008 PHIC and DOH estimated share each

WEAKNESSES OF THE CURRENT MULTI-TIERED

SYSTEM

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•   Creates  discre0on  for  the  taxing  authority  

-­‐  The  rules  for  classifying  products  based  on  net  retail  price,  i.e.  valida0on  and  revalida0on  rules,  leaves  too  much  room  for  discre0on  

• Prone  to  downshi?ing  of  consump0on  /  repor0ng  from  high-­‐priced  brands  to  low-­‐priced  brands.  

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•         Tax  eroded  by  infla0on  

• Congressional  protec0on  from  reclassifica0on  of  old  brands  

   Has  caused  inequity  in  the  tax  treatment  of  cigareEe  products  

   Has  constrained  government  revenues  due  to  inability  to  adjust  tax  rates  of  protected  brands  

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• The  effec0ve  tax  burden  rela0ve  to  retail  price    has  been  eroded  and  the  tax  becomes  more  ineffec0ve  as  a  tool  to  curb  consump0on.  

Brand   2004  Retail  Price  

2004  Tax  Rate  

Effective  Burden  

(Tax/Price)  

2008  Retail  Price    

2008  Tax  Rate  

Effective  Burden  (Tax/Price)  

A   8.32   1.12   14%   18.00   2.23   12%  

B   18.21   5.85   33%   39.50   6.79   18%  

C   16.52   5.60   34%   30.75   6.74   22%  

D   13.93   5.60   41%   17.65   6.74   39%  

E   18.77   8.96   48%   31.00   10.88   35%  

F   22.15   8.96   41%   30.00   10.88   37%  

G   22.71   8.96   40%   30.00   10.88   37%  

Notwithstanding  tax  increases,  effec0ve    burden  has  declined  from  60%  in  1986    

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In Billion Pesos

Tax Collection as Percent of GDP 2007 2008 Philippines 14.0 14.1 Indonesia 12.4 16.0 Malaysia 14.8 18.0 Singapore 12.8 12.8 Thailand 18.0 14.4 China 18.3 18.3 South Korea 15.4 15.4 Hongkong 10.0 10.0 India 9.2 9.2 Vietnam 23.2 23.6 ASEAN 15.9 16.5 AVERAGE 14.8 15.2

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Fiscal Situation: Cigarette Tax Incidence Lower than Neighbors

COUNTRY   EXCISE  INCIDENCE  (%  of  RSP)  

PHILIPPINES   38%  

INDONESIA   40%  THAILAND   43%  SINGAPORE   65%  VIETNAM   45%  HONG  KONG   56%  AUSTRALIA   56%  UK   63%  AVERAGE   51%  

Conclusions:    Tobacco  Tax  Needs  to  be  Reformed  to:  

 Raise  Additional  Revenues   Simplify  Structure  and  Enhance  Equity   Enhance  Sumptuary    Role  of  Tax    

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Thank  you!