MANILA, December 17, 2004
(STAR) President Arroyo is rushing to sign into law the so-called "sin" taxes, the first of a set of proposed tax measures that will shore up the country’s shaky fiscal position and avert a credit downgrade by international agencies.

This came after the Senate, voting 17-2, ratified last night the reconciled House Bill 3174 and Senate Bill 1854 or the Alcohol, Cigarette and Tobacco (ACT) bill. Only Senators Jamby Madrigal and Alfredo Lim voted against the so-called "sin" tax measure.

The House of Representatives ratified the bill in an overnight marathon session on Wednesday.

As the first measure enacted by Congress among eight tax measures introduced by the Arroyo administration, the bill will raise excise taxes on alcohol and tobacco products and bring in an estimated additional revenue of P15 billion annually.

The measure becomes law once it is signed by the President.

Among the Palace-endorsed tax measures, the "sin" tax law is expected to provide the biggest amount of new revenues. The government is hoping that enactment of the law will prevent a sovereign credit rating downgrade.

The slow pace of implementing fiscal reform measures introduced by the Arroyo administration has been cited by international agencies in their threats to downgrade the country’s credit standing, which could mean higher cost of borrowing in the foreign financial market.

"Now it’s very clear that we can pass a measure (in so short a time) and we intend to pass more," Senate finance committee chairman Manuel Villar said in a television interview.

Presidential Spokesman Ignacio Bunye said the congressional action "brightens the outlook on our fiscal position."

Mrs. Arroyo hopes to end her term in 2010 with a balanced budget.

It remains uncertain though if the compromise version of the "sin" tax measure approved by both chambers of Congress will be acceptable to credit rating agencies, as well as foreign investors and creditors.

The new tax rate for cigarettes are: P25 per pack for premium cigarettes priced P10 and above; P10.35 per pack for high-priced cigarettes with net retail price of P6.50 up to P10; P5 to P6.50 per pack for medium-priced cigarettes retailing at P6.35; and P2 per pack for cigarettes priced P5 and below.

The bill also provides an increase of 3.6 percent plus 16 centavos per pack every two years for all cigarette classes. Meanwhile, the tax increase for alcohol products are: distilled spirits, 30 to 50 percent; wines, 30 percent; and fermented liquor, 20 percent. An eight percent increase every two years will also be adopted for alcohol products beginning 2007.

Vital Revenue Measure

When the President announced the eight proposed tax measures, economic managers claimed that around P80 billion in new revenues will be generated. However, Congress so far has passed only one of the eight and there is no indication that more could be passed this year.

Bunye, however, described the passage of the tax measure as the "first and most important hurdle in the train of vital revenue measures."

"We are optimistic that this positive development would pave the way for greater confidence and investments, thus opening up more job opportunities and spurring the implementation of programs and projects for the benefit of the poor," he added.

The expected additional annual revenue from the tax measure is more than double the P7-billion target set in the House version of the bill but lower than the projected P18-billion in incremental revenue envisaged under the Senate’s version.

Speaker Jose de Venecia said the bill would dramatically enlarge the tax yield, as he expressed his gratitude to the 24-member House contingent in the conference committee led by Tarlac Rep. Jesli Lapus, chairman of the ways and means committee.

Lapus, for his part, said that the bill’s main feature is plugging loopholes in free ports and duty-free shops by making cigarettes and alcohol no longer tax free but still duty-free.

"Both (alcohol and cigarettes) used to be duty-free and tax free, and the removals here are rampant. We have plugged the loophole by imposing an excise tax on these products that come through the free ports and duty-free shops," Lapus said.

House Majority Leader Prospero Nograles, however, urged Congress to continue efforts to pass the remaining urgent fiscal measures proposed by the Palace.

So far, the House of Representatives has passed four of the eight Malacañang tax proposals including the "sin" taxes bill. The others were the fiscal incentives, tax amnesty and lateral attrition bills.

Loopholes And Losses

Opposition Sen. Panfilo Lacson predicted yesterday that international credit ratings agencies would soon downgrade the country’s credit standing.

In a television interview, Lacson said the ratings agencies and the nation’s creditors won’t accept the final version of the "sin" tax bill because it is not a "substantive" measure.

Although Congress increased excise taxes on alcohol, cigarettes and tobacco, no meaningful reforms were introduced in cigarette and liquor taxation, he said.

He added that for lack of time, the legislature actually decided to perpetuate the present system with its loopholes and weaknesses that manufacturers exploit and which mean tens of billions in revenue losses for the government.

Lacson cited that one defect in the system which he wanted abolished but which his colleagues voted to keep is a provision in the law that protects old cigarette and liquor brands from being reclassified to a higher tax bracket even if the retail prices of these products have gone up tremendously.

Senators from both the majority and minority voted down his proposal to delete that provision. Only two opposition colleagues — Lim and Madrigal — supported it.

Quoting estimates made by former finance and economic planning secretaries who supported Sen. Juan Ponce Enrile’s version of cigarette taxation, Lacson said the government lost at least P58 billion in cigarette taxes alone from 1999 to 2003 because of the provision protecting old brands.

He said in 2004, revenue losses were placed at P19 billion to P20 billion. "It’s money, lots of it, down the drain. It’s money into the pockets of manufacturers," he said.

Meanwhile, Philip Morris, in a statement sent to the Senate media office, expressed support yesterday for the final version of the "sin" tax bill.

"We congratulate the Senate and the House for a bill that reconciles the various interests of the national government, industry players, tobacco farmers and other stakeholders of the cigarette industry," the company’s managing director, Chris Nelson, said.

"The Philippine government can continue to count on Philip Morris as a partner in the national economic recovery of the country," he added.

Philip Morris and Fortune Tobacco Corp. are the major players in the cigarette industry. They share 90 percent of the P50-billion market. — AFP, Jess Diaz, Marvin Sy, Paolo Romero, Jose Rodel Clapano

Reported by: Sol Jose Vanzi

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