High tax, less
income
cut sales of sin products
Tobacco, alcohol contribute 11%
or P85B of total revenues in ‘08
By AMADO P. MACASAET
A combination of two factors may be
responsible for what appears to be slowly declining consumption
of alcoholic beverages and tobacco.
The first, as shown by comparative figures
obtained from the BIR, is the relatively heavier tax.
The second factor as shown in what is
presented to be government statistics, is income and to a
certain extent the success of the campaign against smoking and
drinking alcoholic beverages.
None of these sits well with the observation
of the World Bank which said that tobacco tax in the Philippines
is among the lowest in Southeast Asia. The figures of the BIR
show that the tax, as a percentage of the price of cigarettes,
is 63 percent.
Put simply, that means that P12.60 of a pack
of cigarettes retailed at P20 is a tax that goes to the coffers
of government.
The World Bank Tobacco Survey conducted in
1989-1995 shows that the Philippines is the most heavily taxed
among the Southeast Asian countries. The tobacco tax in the
Philippines is 63 per cent of the retail price. That of Thailand
is 62 per cent; Singapore, 61 percent; Vietnam, 36 percent;
Malaysia, 33 percent; Indonesia, 30 percent and Cambodia, 20
percent.
The tobacco tax in the Philippines is heavy
enough such that it accounts for 11 percent of total revenue
collections. The Bureau of Internal Revenues collected over P700
billion in taxes last year, some P85.2 billion of which is
estimated to come from tobacco products.
Limited to this fact, tobacco is a necessary
evil as far as revenues are concerned. The evil is the threat to
health. Medication for smoking-related diseases also takes a lot
of money but the government has not come up with estimates.
The fact that tobacco accounts for 11 percent
of total tax revenues does not necessarily mean that sin
products carry the burden of funding the needs of the state.
They just happen to be the favorite whipping boy because the
excise tax system is reasonably more efficient and therefore
applied to sin products and refined fuel.
The collection from sin products is
proportionately similar to fuel products, which is also another
favorite whipping boy.
The situation is that killer tobacco,
alcoholic beverages and fuel have carried the financial burden
of the state for as long as anybody can remember.
Almost every year, tax reform measures are
introduced. Almost always the biggest impact is on cigarettes
and alcoholic beverages.
While there are indications that consumption
of sin products are on the decline, unchecked population growth
actually multiplies the number of tobacco users.
So far the heavy tax burden on sin products
has not shown the telling effects of job losses as a result of
consumption decline. When they do, tax revenues will similarly
decline.
The heavy reliance for tax revenues on
tobacco is juxtaposed to the government’s own campaign of
reducing tobacco abuse. The state is in a bind.
A senior official in the BIR said that the
tax base should be expanded to reduce the reliance on tobacco
for revenues. He pointed out that nobody even wants to conduct a
study.
The annual tax reforms have not introduced
any new system that will make taxation equitable and fair.
It appears from statistics that smoking and
drinking habits become easier to drop or minimize when the
prices are high and people do not have enough money to spare or
there are more pressing priorities than spending money on sin
products.
For example, in the "under P20,000" a year
income category, the expenditure on alcoholic beverage was P1.18
in 1997. The expense on the same product came down to 0.92 in
2006.
The same pattern appears to be true for
tobacco. In 1997, tobacco expenses under the same income
category was P1.70. By 2006, the expense was down to P1.27.
The trend continues even in the higher income
groups.
Those earning P20,000 is estimated to have
set aside P30 for liquor and those earning P30,000 about P40.
In the last category, the per capita expense
on tobacco was P2.224 in 1997. By 2006, the expense was down to
P1.181.
In the case of alcoholic beverages, the per
capita expense in 1997 was P1.33. It came down to P1.17 in 2006.
In the longer term, the country might see
itself with a dying tobacco industry. We cannot say the same of
liquor.
If that happens, hundreds of thousands of
tobacco planters will lose income. Workers in cigarette
factories will be furloughed.
Ancillary industries may similarly turn belly
up. People making carton boxes will go out of business or at
least see a declining demand.
A pack of cigarettes uses foil. Demand for
foil will also decline if the tobacco industry dies.
Tobacco may also be considered a tree of life
like the coconut. But it pays more taxes than coconut products.
