Cigarette Tax in the Philippines

An ad valorem tax is a tax based on the value of the incurred, like the value added tax, sales tax, property tax or inheritance tax. The value of the goods, services or properties is the basis for the tax collected. Specific tax on the other hand, is a tax based on the quantity produced. It is not a function of the value of the product being taxed. Cigarettes are a product being taxed in such category. The use of specific tax could have been a good idea since it is evident that even though the Philippines is a small country, it is the 12th largest in the cigarette industry with an annual volume of around 85 billion sticks of cigarettes. At P1.00 per stick, it could easily translate to P85 billion tax revenue and yet we had only collected a mere P27 billion. This is so because we presently have a faulty tax system that is prone to manipulation and is also impossible to operate to its full potential.
1. The special exemption on excise reclassification of brands that were in the market before 1997. Take the case of Malboro. Even if it is one of the top selling brands carrying one of the highest prices, it falls under a lower category for taxation.
2. To make matters worse, the current tax system has a 4-tier system that categorizes cigarettes as low, mid, high and premium. Now, how the government can monitor if the annual sale of 85 billion cigarettes is properly categorized is something to think about.
3. Since the tax is specific, tax increase is dependent on the tax hike implemented. In the past 10 years, the tax was only increased 3 times; by 12% in 2000, 6% in 2007 and by another 6% in 2009. It was low arbitrarily that is why the Philippines has the cheapest tax rate in the region. This tax doesn’t even track the inflation rate of the country. That is why the tax is so way off the Consumer Price Index (CPI) Since we are only collecting a third of what we should be collecting, I believe that it is best to move the taxation of specific tax to ad valorem tax so that we can immediately see the effect of an increase in our collection even without increasing the rate. We are taxing based on the value of the cigarettes; we are doing away with the exemption of some brands that have been in the market before 1997, we are also avoiding the categorizing of cigarettes. After all, the tax will be based on the value. And lastly, the tax collection will adjust automatically every time there is a price increase in cigarettes. One does not have to wait for a tax hike to be implemented by the government on specific tax which is fix and static, and will only move upon government intervention. Now despite this move, which will immediately increase our tax collection, one would question if there would still be a need to increase the tax rate. By all means we should still do so. Based on the study, the Philippines has the lowest tax rate so there is definitely a need to increase the rate if only to be at par with our neighboring countries. The following study shows how Malboro is selling at the different regions.

Country Price per pack
Singapore $ 8.70
Thailand $ 2.50
Laos $ 1.70
Indonesia $1.00
Philippines $0.70 One must remember that we are talking about “sin tax”. A sin tax is a tax imposed on goods that society considers unwanted, of no social value and where the usage of such is detrimental to the health and welfare of the society. So there is really nothing wrong about increasing the tax rate for such a sin product. After all by doing so, we are solving a 2-prong problem here. This will result in increasing revenues and at the same time discouraging the smoking of cigarettes. Imposing tax is one sure way of raising revenues for a government that is saddled with an extremely high budget deficit and at the same time allowing them to cut down on government costs for health services to people who have succumbed to diseases due to smoking. As to generating more revenues through increasing tax, some sectors have pointed out that this is a futile exercise because it will be affected by a decline in the demand for cigarette consumption. True, this will definitely reduce the consumption for cigarettes but not to that great extent and also not that fast. It’s a known fact how different it is to kick off the smoking habit. What we are trying to discourage is the younger generation moving into this direction of cigarette smoking. Making smoking expensive will surely deter the youth who comprise 20% of the smoking population that runs around 24.6 million people. Here, you are talking to around 5 million youths between the ages of 13 to 15 years old addicted to cigarette smoking. Shouldn’t this be enough reason to cause a big alarm for our government to do something about it? What is even worrying is not only are we in the top 15 cigarette consuming countries in the world, we even inaugurated a $35.6 million cigarette factory in the Batangas province. With such a huge investment it is telling us that there will definitely be more marketing efforts to entice or people to smoke more and more. There are already aggressive companied introducing new flavors with a feminine touch to entice new smokers in the “women” sectors. This should make us more alert because there are mothers, future mothers who would be carrying children who are the future of our country. The tobacco industry even pointed out that their business helps keep the Philippines economy growing with the many jobs it provides to the Filipino farmers and the taxes it generates. But farmers can always go to an alternative crop, like our staple rice. But what tax is this industry talking about when the product it produces causes the government to spend more in health services on diseases caused by tobacco use. Studies show that government spends a whopping P270 billion in health care against a pittance revenue collection of P27 billion on cigarette taxes. Shouldn’t we start looking at the bigger picture and start doing some preventive measures? Raising tax on cigarettes may lead us to lesser expenditure on health services caused by cigarette smoking. This will uphold tax justice because tax should really be recovered so that tax policies are adjusted to encourage industries that are beneficial to people and discourage industries that will cause harm to the health and welfare of the people and our country.