Higher prices of tobacco, liquor won’t affect inflation

Posted at 01/06/2013 4:08 PM | Updated as of 01/07/2013 11:14 AM

MANILA, Philippines -- Price increases in tobacco and liquor products – as a result of “sin” tax reform – won’t create a “significant impact” on inflation, the Bangko Sentral ng Pilipinas (BSP) said.

“We do not see any significant impact on inflation,” BSP Governor Amando Tetangco Jr. told reporters on Thursday.

“Prices of tobacco and liquor account for a small part in the CPI (consumer price index),” he added.

The average inflation decelerated to 3.2% last year, the slowest since the 2.9% posted in 2007. The rise in consumer prices is measured through the CPI, which puts a 2% weight on tobacco and alcoholic beverages.

“Maybe you will see some increases in retail prices but not in the over-all inflation,” Tetangco explained.

Signed by President Aquino last month, RA 10351 took effect in the New Year, resulting in higher excise taxes charged against tobacco and liquor manufacturers, which in turn, may recoup these from consumers by hiking prices.

Among others, the law – which is expected to generate P33.96 billion in its first year of implementation – prescribed a tax rate of P20 per proof liter for distilled spirits, a maximum of P700 per liter for wines and P28 for fermented liquors.

For tobacco, Bureau of Internal Revenue (BIR) data showed excise taxes will increase to P1.75 per kilogram, while cigarettes packed by hand and machines will be charged P12 and a maximum of P25 per pack, respectively.

Although the main goal of the reform was to discourage smoking and excessive drinking, Finance Assistant Secretary Ma. Teresa Habitan said it will be up to manufacturers if they will increase their product price or not.

“We do not give suggested retail prices. It will be up to them,” Habitan said in a chance interview.

In a statement, Philip Morris-Fortune Tobacco Corp. (PMFTC), the largest tobacco manufacturer in the country, said it has yet to reflect higher taxes to its product prices. As per government data, PMFTC enjoys 90% tobacco market share.

“We wish to clarify that PMFTC has, to date, not raised the prices of its cigarette products as of Jan. 1, 2013,” the company said.

“It has come to our attention, however, that some wholesalers and retailers have started selling our cigarette products at higher prices even during the holidays. We can assume that this was in reaction to the BIR’s publication of the revised tax rates,” it added.