By Iris C. Gonzales

The National Government (NG) expects to raise P31.5 billion in the first two years of the implementation of a uniform tax rate on all tobacco and alcohol products sold in the country.

According to data from the Department of Finance (DOF), the government stands to earn as much as P12.9 billion in the first year of implementation of a single tax rate on cigarettes and tobacco products and P18.6 billion in the second year of implementation.

The government wants to change the current excise tax system on cigarettes and alcohol or the so-called sin products by adopting a single rate structure for each category of alcohol such as distilled spirits, wine and fermented liquor and for each category of tobacco products such as tobacco, cigar and cigarettes.

In a position paper submitted to the House of Representatives, the DOF said there was a need to reform the sin tax measure to raise additional revenues that would compensate for the revenue erosion arising from adjustments in the tax system.

These adjustments include higher personal exemptions and deductions for individual taxpayers as mandated by Republic Act 9504 or the Minimum Wage Law and the lowering of corporate income tax rate in 2009 from 35 percent to 30 percent as stipulated in the Value-Added Tax Law.

The department also said that the current tax structure is inequitable because products having the same current net retail price can be taxed differently if one was introduced before January 1997 and other one after 1997.

Furthermore, the department said there is no provision in the current structure that allows the specific tax to track inflation.

The DOF has already submitted to the House of Representatives a draft bill seeking to impose a uniform tax rate on all cigarette brands in the country starting 2010.

The proposed bill is an amended version of House Bill 3759 filed by Quezon Rep. Danilo Suarez.

In House Bill 3759, Suarez proposed to amend the existing cigarette excise tax system by imposing a uniform excise tax rate of P14 per pack on almost all brands sold in the country starting Jan. 1, 2010.

The DOF adopted this provision but also proposed that the excise tax rate be adjusted annually to inflation.

Under the proposed bill, brands with an excise tax rate higher than P14 per pack would not enjoy a lower tax rate because the measure prohibits any downward classification.

Under the current excise tax system, low, mid and high-priced brands pay excise taxes at rates lower than Suarez’s proposed P14 specific tax per pack on cigarettes. Currently, premium brands such as those owned by British American Tobacco (BAT), pay a tax of P26.06 per pack. BAT owns the Dunhill, Lucky Strike and Vogue cigarette brands.

Furthermore, under the current excise tax system, cigarette brands introduced prior to 1997 enjoy legislative protection as they are taxed based on their prices before 1997. On the other hand, those introduced after 1997 are taxed based on their current prices.

As for alcohol, the DOF recommends the adoption of a single specific tax rate of P20.38 per liter regardless of raw materials used in the production.