MANILA, December 16, 2004 (STAR) By Paolo Romero and Jess Diaz - The bicameral conference committee on ways and means agreed last night on a compromise version of the proposed Alcohol, Cigarettes and Tobacco Tax bill or the so-called "sin" tax bill.

Albay Rep. Joey Salceda, chairman of the committee on economic affairs, said the bicameral conference committee adopted a floor tax of P2 per pack for low-priced cigarettes — a compromise between the P1.34 per pack proposed by the House of Representatives and the Senate’s suggestion of P3.

For medium-priced cigarette brands, the new tax rate will be P6.35 per pack while high-priced and premium brands will be levied P10.35 and P25 per pack, respectively.

In effect, cigarette tax was increased by as much as 90 percent for low-priced and premium cigarette brands and only 20 percent for medium and high-priced brands.

Both the Senate and the House agreed to impose an increase of 3.6 percent plus 16 centavos per pack every two years across all tiers of cigarette classes.

Meanwhile, for alcohol, liquor and spirits, the tax rate was raised to 20 to 50 percent.

Opposition Sen. Juan Ponce Enrile estimates that the "sin" tax measure is expected to raise at least P17.5 billion in fresh revenues for the cash-strapped government in the first year of its implementation.

The cigarette tax alone is expected to raise P6 billion while excise tax on the product is expected to generate P6.25 billion. The alcohol tax will raise as much as P2.7 billion while the excise tax on the same product could generate another P1 billion.

The bicameral conference committee, often referred to as the third chamber of Congress, began reconciling the Senate and House versions of the sin tax bill yesterday afternoon. The bill is expected to be ratified by both chambers this week and will hopefully be signed into law by President Arroyo before the Christmas break.

In the Senate’s version of the "sin" tax bill, a higher tax on low-priced or cheap cigarettes was proposed apparently to dissuade the poor from smoking.

The chamber proposed to increase the excise tax for this classification to P3 per pack or more than double its present levy of P1.12 per pack and nearly double the P1.65 rate recommended by the ways and means committee chaired by Sen. Ralph Recto.

The House of Representatives, on the other hand, has approved a 20 percent across-the-board increase for all classifications of cigarettes. That is equivalent to only 22 centavos in the case of low-priced cigarettes as against the Senate’s P1.88 increase.

Mrs. Arroyo earlier lauded the Senate for approving the proposed increase in excise taxes for alcohol and cigarette products and expressed hope that it will be approved at the bicameral conference committee level.

She called it a "breakthrough" in political unity and solidarity among lawmakers behind the government’s fiscal reform program.

"Side by side with Congress, we shall pursue our revenue agenda with unflagging resolve and put all doubts about the executive-legislative partnership to rest," she said.

Low-priced and medium-priced cigarettes account for nearly 70 percent of the P50-billion worth of cigarettes sold in the country annually, with low-priced cigarettes making up over 40 percent of the market share.

Most cheap cigarette brands are produced by Fortune Tobacco Corp., the flagship company of taipan Lucio Tan. Brands manufactured by Fortune’s competitor Philip Morris are mostly in the high-priced group. These two firms share 90 percent of the market.

The Senate kept the tax rates endorsed by the Recto committee for medium-priced, high-priced and premium cigarettes.

The levy on medium-priced cigarettes will go up from P5.60 per pack to P6.67, the rate on high-priced will jump from P8.96 to P10.44, while the tax on premium will be adjusted from P13.44 to P17.47 per pack.

The new rates would take effect next month.

The President estimated that the country needs P80 billion in additional revenues every year to avoid a debt default. The Bangko Sentral ng Pilipinas (BSP) says the government’s debt interest payments are expected to climb by 16.5 percent to 323.8 billion pesos next year.

"A vibrant and democratic process is at work to put our fiscal house in order," Mrs. Arroyo said. "We are confident statesmanship will rule at the highest level of debate."

The President has proposed eight fiscal reform and revenue-generation measures and certified them urgent - the "sin" tax measure is one of these measures. "I see the door wide open for more revenue measures to pass," she said.

Among the other measures the President is lobbying for are a fuel excise tax, a rationalization of tax incentives granted to business and a bill that seeks to peg tax collectors’ compensation to their performance.

International credit rating agencies have warned the Philippines that failure to enact more of these measures could soon result in a costly credit rating downgrade for the country.

‘Lost Opportunity’

Lacson, meanwhile, said the government has lost its opportunity to impress creditors for passing a watered-down version of the "sin" tax measure.

Lacson insisted that the removal of the four classifications for cigarettes in imposing the tax measure has watered the bill down, adding that the passage of such a bill could result in a "victory" for "privileged" cigarette manufacturers.

He also said the passage of the "sin" tax bill remains questionable as he cited an earlier meeting between representatives of cigarette manufacturers Fortune Tobacco and Philip Morris Philippines Manufacturing Inc. (PMPMI) with the President, Senate President Franklin Drilon, Speaker Jose de Venecia Jr. and Senate ways and means committee chair Recto and House ways and means committee chairman Rep. Jesli Lapus in Makati City.

"After that meeting, the foregone taxes become a foregone conclusion," Lacson said. "We are not expecting any taxes because (these) are already foregone."

He added that someone from a tobacco lobby group approached him while the Senate was in the process of approving the "sin" tax bill.

"Someone also talked to me, but there were no figures," Lacson said, without elaborating whether "lobby money" changed hands prior to the Senate’s approval of the "sin" tax measure. He also refused to name the person who approached him.

"I think it is improper for government leaders to be meeting with the players and manufacturers outside the halls of Congress where these tax measures should have been discussed," he said. "Such a meeting will fuel speculations that something was being cooked."

Lacson said the removal of the classifications for cigarettes will result in less revenue and a credit downgrade for the country. "We will be downgraded," he said. "This is our first step and we should take the correct first step. There are more tax measures forthcoming to be deliberated upon but we have bungled our first step and the raters are observing us."

Lacson also sought to delete a provision in the bill which he said tends to protect cigarette brands existing as of Oct. 1, 1996. "These brands are protected because they are not reclassified to a higher tax bracket, while newer brands are assessed (for) higher taxes. Under such a setup, there is a virtual tax subsidy for manufacturers of existing brands, thus preventing competition," he said.

"By failing to collect additional revenues through a simple correction in the provision of tax laws, government is perceived to have no political will to decide good policies," he said. — With Jess Diaz, Marichu Villanueva, Jose Rodel Clapano, AFP

Reported by: Sol Jose Vanzi

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