The government must not raise taxes on tobacco and alcoholic products in times of crisis because it will only pull down the demand, for these products, local businessmen said yesterday.

“Higher taxes mean higher prices and less demand. In the end, the government’s intention to raise more revenues out of these products will also be negated by the drop in demand,” Jesus L. Arranza, Federation of Philippine Industries (FPI) president, said in a statement.

The group stressed that the levying of higher taxes is very untimely due to the economic crisis and the worsening case of smuggling of tobacco and liquor that are causing the market of domestic manufacturers to shrink.

Government data showed a 35.6 percent drop in taxes collected from the tobacco industry in the first quarter of 2009.

In the case of alcoholic drinks, Arranza said it has been established that when the price of copra is down, people in coconut producing area shift to the lower-priced gin products because their income is low. So with the recession, imposing taxes would just lead to a further drop in sales.

“It is not true that tobacco and alcohol are not price-sensitive,” he said.

In addition to higher process, Arranza said tobacco and alcoholic products that are entering the country illegally are also eating up into the domestic market considerably.

In fact, in the last two weeks, the Presidential Anti-Smuggling Group (PASG) intercepted different brands of smuggled cigarettes and liquors in Currimao, Ilocos Norte and in San Fernando, La Union.

He said it would be a big injustice if the government would just keep on raising taxes on the domestic manufacturers of cigarettes and liquors and then not give them ample protection against the smugglers that are raiding their market.

Arranza lamented that if only the Department of Finance would just focus more on the campaign against smuggling, the agency would be able to raise an estimated P120 billion in additional revenues annually and it does not need to put more tax burdens on vital players in the Philippine economy.

During this difficult economic period, Arranza said the government should be more concerned in preserving the livelihood of the millions of Filipinos that are dependent on these industries.

Also, Arranza said the government and the lawmakers should stop branding tobacco and alcohol as “sin products” since these industries are feeding millions of Filipino families and are remitting billions of pesos in revenues to the state coffer.

“It’s unfair to say that the farmers and the manufacturers are producing ‘sin products’ and to brand the companies that are employing Filipinos and are remitting taxes to the government as ‘manufacturers of sin products.’ They are contributing heavily to the economy,” he said.