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Despite higher tax rates in Q1, sin tax collections plunge 21%

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abs-cbnNEWS.com | 06/12/2009 7:18 PM

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MANILA - Despite the increase in sin tax rates this year, tax collections from sin products--cigarette and liqour--amounted to P9.2 billion pesos, almost P2.4 billion lower than revenues collected in the same period last year, the Bureau of Internal Revenue reported.

Statistics from the tax agency showed that cigarette manufacturers' sin tax payments from January to March went down by 35.5 percent to P4.04 billion in the quarter, while those from liquor makers also retreated by 8.6 percent to P5.2 billion.

Officials of the country's main tax agency said the dismal sin tax collections was primarily due the fact that cigarette and liquor firms skirted the implementation of an 8 percent increase in sin tax rates this year by frontloading the withdrawals of tobacco and alcohol products from their warehouses months before the new rates took effect in January.

Republic Act 9334, or the indexation of sin taxes signed in 2004, mandates that excise tax slapped on cigarettes and liquor products would increase every two years (including 2009) until the increase reaches 20 percent by 2011.

Frontloading

In 2008, revenues collected from sin products jumped close to 12 percent to P47.1 billion from P42.2 billion in 2007. But in the succeeding quarter--January to March 2009, when the higher tax rates were in place, collections plunged.

Data from the tax agency showed that excise tax collected from cigarette and liquor makers amounted to P9.21 billion from January to March or P2.39 billion lower than the P11.59 billion collected in the same period last year.

Excise tax collected from liquor makers likewise retreated by 8.6 percent to P5.17 billion from P5.32 billion as volume of withdrawals of fermented liquor fell by 34 percent while that of distilled spirits declined by 13.7 percent.

Sin tax is computed based on how many products leave the warehouses of the sin products manufacturers.

From January to March this year, cigarette makers withdrew 751,120 packs packs--far lower than the 1.1 million packs withdrawn in the same period last year.

BIR officials said it has been the practice of manufacturers to frontload the withdrawals of tobacco and alcohol products from their warehouses months before the scheduled bi-annual increase in excise tax rates as mandated by RA 9334.

For example, in late 2006 local manufacturers also frontloaded their withdrawals from warehouses to avoid paying higher taxes when the new sin tax rates were implemented in 2007.

Major cigarette producers include Fortune Tobacco of taipan Lucio Tan, Philip Morris Philippines Manufacturing Inc., La Suerte Cigar & Cigarette Factory while alcohol producers include Ginebra San Miguel, Tanduay Distillers, Consolidated Distillers of the Far East, Diageo Philippines , Distileria Bago, and others.

Budget deficit

Finance secretary Margarito Teves has been pushing for the rationalization of the existing sin tax law to raise as much as P112 billion worth of extra revenues.

As the global financial crisis continue to batter economies worldwide, the Philippines has not been spared and is now staring at a wider deficit of P250 billion, or 3.2 percent of the country's gross domestic product. The budget deficit has been revised three times already as economic managers continue to weigh how badly hit the local economy is.

Tax collections of the Bureau of Internal Revenue and the Bureau of Customs have been dwindling. Yesterday, their combined collection target has been slashed by up to P56 billion.

Additional collections from sin taxes have been eyed to plug this widening fiscal gap. Lawmakers, however, have been consistently blocking efforts to push legislation on sin tax reforms, citing the impact to the employment prospects of tobacco farmers in the North.

Sin tax reforms, according to a survey last year commissioned by the Finance Department, are acceptable to about 82 percent of Filipinos.

In its place, tax on text messages and trade books had been floated. Besides, these are not popular since the impact is nationwide and hits even the poor who actively use their mobile phones for communication needs.

Without new revenue streams, the government has to incur additional debts locally and abroad to plug the deficit. The Philippines is already one of the countries in Southeast Asia with high debt-to-GDP ratio.