Finance secretary Margarity Teves continued to push for revisions to the law on sin taxes to raise additional P90 to P120 billion revenues in the next 3 years.

In a gathering of Filipino businessmen on Friday, Teves cited a survey, commissioned by the health department and conducted by polster Social Weather Station in 2007, showing that 82 percent of Filipinos were in favor of increasing cigarette taxes.

"This proposal is probably the most acceptable to the Filipino public of all the proposed revenue enhancement measures because we are increasing tax on vices," Teves told the businessmen.

Teves said he wants Congress to approve the increases on "sin taxes" in the first quarter of the year, alongside proposals to rationalize fiscal incentives, simplify the income tax system, and remove the salary cap on tax and customs personnel.

Teves said the increase in the tax on alcohol and tobacco products alone would generate as much as P30 billion ($635 million) in additional revenues in the first year of its implementation.

The government hopes to keep the budget shortfall below P102 billion this year after an estimated P75 billion deficit in 2008 through fiscal reforms, including improvements in the sin tax system.

"Half of the projected additional revenues would come from the proposed increase in sin taxes. Again, we are advocating this measure because this is probably the most acceptable tax measure to our people and has the biggest revenue impact," he said.

Simpler

Teves said a number of pending bills in congress would simply the current complex sin tax system to a simpler one.

The proposal, Teves said, imposes a two-tier system on the first year and a single rate on the second year in the case of cigarettes.

The current four-tier system was based on a mix of specific and ad valorem system in place since 1997 wherein cigarette brands are classified into four categories--low, medium, high, and premium--based on their net retail price.

The four-tier system slaps lower taxes on certain locally manufactured cigarette brands, such as those by market leader Fortune Tobacco.

At the extreme, there is a 640 percent tax differential between low-priced and premium-priced brands.

Based on a study by the International Monetary Fund, the Philippines has the lowest tobacco excise tax in the Asia Pacific region.

The proposed simpler tax system, Teves said, could raise P20 billion to P30 billion on the first year, P30 billion to P40 billion on the second year, and P40 billion to P50 billion on the third year.

It could raise P60 billion to P70 billion annually starting the fourth year for the national coffers.

Fiscal status

Additional income from the four proposed revenue schemes would go a long way in helping the government sustain fiscal improvements, which were largely achieved due to spending cuts. But economists said he would find it difficult to push the policies through Congress.

President Gloria Macapagal Arroyo signed RA 9334 otherwise as the indexation of excise tax of sin products such as alcohol and tobacco products last December of 2004 prescribing tax increases every two years until 2011 which is an equivalent of a percentage increase with a specific component.

Teves sought the help of major business organizations led by the Philippine Chamber of Commerce and Industry to ensure the passage of key legislative measures including the rationalization of fiscal incentives, the exemption of the Bureau of Internal Revenue and the Bureau of Customs form the Salary Standardization Law, and the simplified net income tax scheme.

'If Teves is able to get his timetable, at least one of them is approved, that augurs well for the fiscal side on a long term basis, and therefore the credit standing of the country should be intact despite the difficult economic environment,' said Joey Cuyegkeng, an economist with ING bank in Manila.

'But again, the lobbies are strong from both sides,' he added

Cuyegkeng added that the Philippines' tax to GDP ratio was lower than its neighbors in Southeast Asia and this needed to be rectified.

The government aims to increase the country's tax effort -- tax collected as a percentage of gross domestic product -- to 14.7 percent from an estimated 14.5 percent in 2008, Teves said.

Credit rating firms Fitch and Standard & Poor's have said the Philippine risks losing its fiscal achievements unless it improves revenue collection, curb widespread tax evasion, smuggling and corruption.

Based on preliminary government data, at least 12 percent or 70,000 corporations registered with the Philippine Securities and Exchange Commission are not listed with the Bureau of Internal Revenue (BIR), Teves said.

The finance chief said his office was also looking at technology-based measures to plug tax leakages, such as allowing the use of credit cards to pay taxes, and modernizing the systems of the BIR's regional offices.