MANILA,  November 4, 2004
By Marichu Villanueva - Happy holidays.

President Arroyo has told her Cabinet members that they should now stop raising the fiscal crisis threat because of the expected passage of the Malacañang-backed "sin tax" bill.

The country is now steering clear of a looming fiscal crisis because of the additional revenue the bill will bring and Filipinos can look forward to a bright Christmas, she said.

"So with these new developments, after I’ve said that we were in the middle of a fiscal crisis, I think this gives room for optimism and, therefore, what I can say is that we’re now getting out of that crisis," Mrs. Arroyo told reporters during a visit to the editorial offices of GMA Network News in Quezon City.

"I told my Cabinet members let’s not talk crisis anymore. We rang the alarm bell, and the people and the institutions responded. Isn’t that a great source of optimism for our country?" the President asked.

Mrs. Arroyo’s economic team, headed by Trade and Industry Secretary Cesar Purisima, estimates the cash-strapped government to collect P35 billion to P40 billion from the so-called "sin tax" bill, which will raise taxes on liquor and cigarettes.

"And so we’re now prepared for a good Christmas," Mrs. Arroyo said.

The bill’s passage is expected to also improve the country’s international credit rating, Purisima told a separate press briefing at Malacañang yesterday.

The measure is one of eight tax bills Mrs. Arroyo has urged Congress to pass to raise badly needed government revenue.

Mrs. Arroyo said businessmen are closing monitoring the bill as well as the many other fiscal measures and reforms she has adopted to revitalize the Philippines’ struggling economy.

"They look to see these fiscal reforms and I think the passage of the tax on alcohol beverage in the House — to be followed by an even stronger measure from the Senate which the House has agreed to consider very favorably in the bicameral conference committee — that’s a very important matter that we are addressing with regards to expectations of businessmen with regards to fiscal reforms," she said.

Mrs. Arroyo softened her statement in August in which she disclosed that the country was in the midst of a fiscal crisis.

"I did not call it an economic crisis because our country has been growing faster than our neighbors in the last three and a half years of my administration. So you can’t call that a crisis," she said. "So the crisis really is on the fiscal front only. But since I made that call, things have happened since I have made that announcement."

Mrs. Arroyo is struggling to rein in a burgeoning budget deficit, which economic analysts warn could throw her anti-poverty program off track.

Following the fiscal crisis declaration, Mrs. Arroyo promptly introduced a drastic austerity program — including scrapping parties and gift giving by government officers and most foreign trips for government officials.

Rampant tax evasion, corruption, bloated state subsidies and protectionism have been blamed for the government’s fiscal woes.

Mrs. Arroyo had vowed to take on "entrenched interests" as well as make tough and even unpopular decisions to avoid a possible fiscal crisis.

She has reduced the number of vehicles in her security convoy as her personal contribution to her administration’s efforts to reduce fuel consumption to deal with high oil prices and the budget deficit.

Recto Mulling ‘Sin Tax’ Formula

Sen. Ralph Recto, chairman of the Senate committee on ways and means, is eyeing a new formula in increasing specific taxes on the so-called sin products like cigarettes and liquor.

He told journalists yesterday that the scheme he is studying is a combination of a percentage increase as proposed by the House of Representatives and a specific amount as suggested by opposition Sen. Juan Ponce Enrile.

"For instance, in the case of cigarettes, we could increase the rates across the board by 50 centavos or P1 per pack and then add 20 percent more on top of that," he said.

He said the impact of a P1 adjustment would be greater for low-priced cigarettes than for the three other classification of cigarettes. It would be a nearly 100 percent increase for those in the low-priced category, which are now levied a specific tax of P1.12 per pack, he said.

On the other hand, a P1 hike in the case of medium-priced, which are now taxed at 5.60 per pack, would be less than 20 percent, he added.

He pointed out that these figures are just examples. He stressed that he is still studying what rates would be acceptable to the House, to his Senate colleagues and to the two dominant industry players, Fortune Tobacco and Philip Morris, which together account for 90 percent of the P60 billion cigarette market.

The House has proposed that specific taxes on sin products be increased by 20 percent in 2005, three percent in 2006 and another three percent in 2007.

Enrile wants a much higher adjustment to discourage people from smoking, which, according to a World Health Organization study, is killing 20,000 Filipinos every year.

He is proposing a minimum tax of P6 per pack for low-priced and medium-priced cigarettes. Most brands in this tier are produced by Fortune Tobacco.

Under Enrile’s proposal, the tax on low-priced cigarettes would be increased by P4.88. The House-suggested adjustment of 20 percent is equivalent to 22-23 centavos only. Enrile’s opposition colleagues have vowed to support his proposal.

Minority Leader Aquilino Pimentel Jr. said they would also insist that the present four classifications of cigarettes be scrapped. If these are kept, people would only shift to low-priced cigarettes once a tax adjustment is effected and the anti-smoking drive would be negated, he said.

Besides low-priced and medium-priced, the two other classifications are premium and high-priced.

Under the Enrile bill, these tiers would be abolished in 2010, when a uniform tax of P13.50 per pack would be imposed. — Jess Diaz

Reported by: Sol Jose Vanzi

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