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'Sin' tax reform's Objectives compromised, health advocates claim HEALTH ADVOCATES have slammed the amended version

of the sin tax bill approved by the House ways and means committee earlier this week, claiming the measures objectives have been compromised. Former Health secretaries and civil society representatives on Friday criticized changes the Department of Finance (DoF) made to House Bill 5727, particularly the retention of tiers in the excise tax system. "The distortion of the bill, the failure of the amendment to carry the unitary system of excise taxation for one, is objectionable from the standpoint of public health," Health Futures Foundation, Inc. President Jaime Galvez- Tan said in a statement. Under the amended HB 5727, excise taxes will be implemented on two tiers for tobacco products and three for alcohol products, depending on their net retail price. Higher taxes will be levied on those with higher prices, while lower taxes will be charged for lower-priced products. While this is a reduction of the four tiers currently enforced under the National Internal Revenue Code (NIRC), it is also a concession on the part of the DoF, which originally pushed for a single tier. Mr. Tan, a former Health secretary, explained that the purpose of a unitary system was to discourage people from maintaining consumption of "sin" products when prices go up by simply shifting to a brand that is lower-taxed and lower- priced. The tiers became one of the most contentious topics during the debates. Opponents argued that a single tier would place a heavy tax burden on low-priced alcohol and tobacco, the local manufacturers that produce them and the poor who consume them. A two-tier tax structure can be also be a source of tax administration problems, since it could lead to misclassification and possible corruption, HealthJustice Philippines Managing Director Irene Reyes said. This coul subsequently create inefficiency and revenue losses for the government, she claimed. Ms. Reyes added, "The existence of lower-priced brands in the market heavily contradicts with the health objective of making these products unavailable to the most vulnerable sectors, especially the youth and the poor. Another problematic amendment in HB 5727, she claimed, is the mandatory 8% increase in excise taxes every two years from 2015 to 2025. The increase is "marginal" and the 10-year period "ties the hands of the government to impose a higher rate." People will also be desensitized to the hikes since their personal disposable incomes will also increase over time, she explained. The original HB 5727 proposed to index the rates to a consumer price index and adjust them yearly. The change is still an improvement from the current NIRC schedule where tax rates are adjusted every two years but with no requirement for the size of the increase. "Truly, the health targets and objectives appear to have only become incidental in this amended bill instead of being a real consideration..." Ms. Reyes said. Esperanza I. Cabral, former Health and Social Welfare secretary, added: "Our people are the core of our countrys national wealth, thus Filipinos health should always be a top priority ... Public health should always be over and above profit." The DoF presented its substitute bill to the House ways and means committee on Wednesday -- the first day of discussions after a month- long recess -- and it was swiftly passed with 46 lawmakers in favor and 14 opposed. Finance Secretary Cesar V. Purisima, following the approval, said that the amendments were deemed the "best way forward to address the concerns of all those affected." -- Diane Claire J. Jiao

House panel okays bill increasing 'sin taxes' MANILA, Philippines The House ways and means committee approved yesterday a bill increasing taxes on cigarettes, liquor and other tobacco and alcohol products. The committee, chaired by Davao City Rep. Isidro Ungab, voted 46-14 to endorse House Bill 5727 for plenary consideration and approval by the entire chamber. Malacaang lauded the committees approval of the measure, saying the development would likely boost the countrys credit standing. Cavite Rep. Joseph Emilio Abaya is the principal author of the measure. He and Ungab belong to the ruling Liberal Party. Ungab called for voting after Abaya accepted compromise proposals on tax rates presented by the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) in the course of yesterdays hearing. BIR Commissioner Kim Henares told the committee that they came up with the rates after consulting with the stakeholders. Abaya told reporters that under the compromise proposals that he accepted, cigarettes with a net retail price of less than P11.50 per pack would have a tax of P12,while those selling for more than P11.50 would be levied a tax of P28.30 on the first year the new tax structure takes effect. On the second year, the levy would be P22 per pack for those with a retail price of less than P11.50 and P30 for those selling at a higher price, he said. He said under the current system grouping cigarettes into four tax rates based on their retail prices, the rates range from a low of P2.72 per pack to P28.30. Abayas original proposals were P14 per pack on the first year and P30 on the second year. In the case of fermented liquor, the compromise rates are P15.49 for those selling below P50.60 and P20.57 for those with a higher retail price. At present, there are different rates for alcohol products made out of local raw materials and those that use imported content. Abaya said his bill seeks to scrap the distinction to address the concern of the World Trade Organization that the Philippines is using tariff rates to protect its own products in violation of the General Agreement and Tariffs and Trade. The committee voted to endorse the bill despite strong objections from several congressmen, including Rufus Rodriguez of Cagayan de Oro City and Carlos Padilla of Nueva Vizcaya. Rodriguez said the committee should schedule more hearings to get the views of stakeholders on the DOFs and BIRs compromise rates, which were presented only yesterday. Calling for a voting now without hearing the stakeholders on these new proposals would violate due process, he said. Padilla said administration allies, who dominate the committee, railroaded the approval of the bill. Landmark For Finance Secretary Cesar Purisima, the approval marks a landmark in the history of the Philippine legislature, as it paves the way for a significant restructuring of excise taxes on tobacco and alcohol after more than 15 years. These reforms will enable us to increase the cost of tobacco and alcohol addiction while at the same time provide government with additional resources to respond to the public costs of these vices, he said. The amended sin tax measure is expected to translate to P33 billion in additional yearly revenues, as against the P60 billion envisioned in the original Abaya bill. He also said a restructured tax system would level the playing field in the tobacco industry as well as enable the country to comply with its commitments to the World Trade Organization (WTO). We congratulate the House Ways and Means Committee, led by Chairman Isidro Ungab, in passing the amended version of House Bill 5727 which outlines the muchneeded reform in the excise tax regime of the tobacco and alcohol industry, he said. We look forward to having this bill passed by next month, and enacted into law within the year. The British American Tobacco, through its general manager James Lafferty, also expressed belief the measure would level the playing field in the industry. The proposed two-tier system on tobacco is the best compromise under

the circumstances. It will deliver the governments revenue goals and pave the way for a level playing field in the industry, Lafferty said. PMFTC, a merger of Philip Morris and Fortune Tobacco Co. and which controls 94 percent of the local industry, could not immediately be reached for comment but it has repeatedly expressed its opposition to the Abaya measure. The Philippine Tobacco Institute (PTI) has also repeatedly opposed the Abaya measure, claiming this would jack up cigarette prices and lower consumption, and in effect kill the tobacco industry. Improved ratings Presidential spokesman Edwin Lacierda sees an improvement in the countrys credit rating, with the likely enactment of HB 5727. That was one of the statements I believe made by the credit rating agencies. And since its out of the committee level, hopefully we will have swifter deliberations in the plenary. So we hope to have the House bill approved at least in the Lower House. And so we certainly welcome the passage of this bill in the committee level and hopefully in the plenary, Lacierda said. The initiatives to reform the excise tax system started 15 years ago and it is only under this administration, with the Presidents firm leadership, that such a legislative measure has been approved, Lacierda said. The rationale for reform is clear. This measure seeks to help fund public health care, which is a key thrust in the administrations drive for inclusive growth. It also seeks to improve the efficiency of tobacco farmers, strengthen the current tax structure and sustain revenue growth, he said. He also said there was no reason for the President to certify the bill as urgent. There are certain requirements that the President has always maintained in certifying a bill as urgent. I think the way, if you notice the process by which this bill passed the committee, we expect that there will be lesser opposition and that the passage of the bill will be swifter in the plenary, Lacierda said. I think the bill will not require to be certified as urgent and the legislators themselves know that this has been considered as a priority bill during the second LEDAC (Legislative Executive Development Advisory Council), he said. The Palace also thanked Speaker Feliciano Belmonte Jr., Majority Leader Neptali Gonzales II, and Ungab for working vigorously for the measures approval. This is a testimonial to the close cooperation between the executive and legislative branches of government. We look forward to the legislative deliberations in plenary where we hope the majority of representatives will stand alongside their colleagues who support fiscal reform, Lacierda said. With Iris Gonzales, Aurea Calica