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Taxes on tobacco and alcohol – raising taxes, “sin”

The taxation of “sin” habits is one of the most basic questions of public policy, to understand. Nevertheless, it is not necessarily so. The proposals always have its opponents.

Government-sponsored legislation, House Bill 5727, proposes to increase taxes on tobacco and alcohol, to put them on their way to securing the role that revenues from such taxes, contribute to national progress. The bill also proposes to apply the same tax rates in line with international practice for the domestic sales tax.

The structure of the sin tax was set at their current rates in 1996, when Congress passed a comprehensive change in the tax system. Under the guise of reform, what actually happened then was revised excise tax so that tax rates on tobacco and alcohol are returned to the “specific” rates that went up with the cost of product sales. On taxation of tobacco and alcohol on their physical unit sales were related to their value. Then, as time passed and the inflation of prices of goods should be, the tax would take the government fell.

Ad valor tax percent tax on the sale a product that is sensitive to its price. Specific tax imposed on the physical items. For example, the tobacco industry, the tax on packs of 20 sticks and spirits, in units of liquid measure.

Special rates in other countries are often not indexed to inflation. But they are periodically adjusted up to the proper acts of the government to raise them. In most of these governments, which operate on the basis of the parliamentary system, the budget approval process is integrated with the tax rate adjustments.

As in the case of Singapore and Malaysia, the government proposes a budget for the fiscal year, the proposals include tax adjustments necessary to fund the budget. Thus, their excise taxes, which are a big part of their budget requirements, reflect the current value of taxable goods.

In the case of Filipino American practice, it follows that any tax legislation is a separate act of legislation. In separate price of legislation, they can not be speculated on very large public issues that need urgent funding.

“Tax revenues from excise taxes have declined relative to the total.” A consequence of the 1996 changes to the excise taxation, excise duties on tobacco and alcohol contribute to national tax effort fell.

In 1997 a collection of tobacco and alcohol taxes amounted to 1.2 percent of GDP. Today, they only contribute 0.6 percent of GDP. It says the deterioration, which affects the ability of governments to finance their needs.

This is one reason why the tax effort of the country hovered around 12 to 13 per cent of GDP, when it could be higher. Philippine tax effort is low compared with many advanced countries in the region.

The ratio of tax effort, if earlier, allows the government to finance their basic needs expenses. This is an important factor in achieving macroeconomic stability. Successful passage of this bill could lead to the modernization of the country’s sovereign credit rating. This event can reduce the cost of borrowing for the whole country to the capital of the world markets.

The main feature of the current account tends House to apply the same tax rate on all tobacco and alcohol products subject excise tax. This action will put an end to the practice of the local development of various excise taxes on the same products that distinguish their origin or composition of the raw material (ie the country of origin).

The reform aims to increase the excise rates on cigarettes and alcohol. Since the local brands are low tax regimes, exercise tends to raise these rates to the level of those already imposed on imported goods. This will put all the products of tobacco and alcohol consumption on an equal playing field as far as excise duties are concerned.

With the recent merger of Fortune Tobacco Lucio Tan and the Philip Morris Company (foreign firm that produces for export and for domestic brands), tobacco industry has become in essence a private monopoly. Local manufacturers of alcohol products are more competitive group of local companies. They are a group of manufacturers whose products are, if promoted could also compete in the domestic market.

As to the loss of protective functions in the excise tax, the domestic industry is still money. They may ask for additional protection through the tariff system, which is a suitable place to protect against foreign imports.

Unification of rates will mean that local brands will face a stiff tax increase at this time on the level of foreign brands. In this connection, the product of the fear of displacement of local producers is exaggerated. However, higher tax rates will increase the prices of these products.

Because “sin” products face inelastic demand, the consumption of these products has fallen significantly as a result, price increases led to higher taxes. Domestic products even cheaper cost compared to the import competition. The introduction of a unitary rate of excise duty will be to fix a long time practice of excise duty as a protective agent for the domestic industry. The country was left alone in this practice. Other countries have only a similar tax on the consumption of products, irrespective of their origin.

For decades, the promotion of domestic industry, the excise duty structure contained security features. Originally this feature was more pronounced in the excise duty. Security features may be intensified in 2004 when the rate of excise duty for alcoholic beverages has been corrected.

The European Union and the United States filed a lawsuit against the Philippines on this domestic tax regime and won the case. Recently, World Trade Organization dispute the court announced its adverse decision, saying that the Philippine non-discriminatory practices in violation of trade practices in international trade.

There are many obvious advantages for the government to “sin” tax on the amended excise taxes on tobacco and alcohol. Without special design, this measure deserves a transition for the following reasons:

(1) Additional revenues to government will strengthen the funding for public infrastructure and for social services through education and public health expenditure.

(2) The tax effort will rise so that the country’s macroeconomic fundamentals and budgetary stability are strengthened.

(3) The country’s sovereign credit rating could deserve an upgrade, thus raising the country’s economic prospects in the eyes of the world community.



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