On Thursday (June 09, 2011), Rep. Hermilando Mandanas, chairman of the House of Representatives Ways and Means committee, moved to secure permission from House leaders to conduct hearings during the sine die adjournment.
In a news release quoted by the Manila Times and the BusinessWorld over the weekend, Rep. Mandanas said that this was part of his bid to expedite the passage of various fiscal measures—including one on sin taxes —all meant to harness revenue collection and address tax leakages and smuggling.
The Action for Economic Reforms (AER) supports all moves to pass a sin tax bill to raise government revenue from tobacco and alcohol taxes, which can be used to finance health and other development objectives.
However, we strongly dissuade Rep. Mandanas against rushing the process. We are concerned that rushing deliberations during the Congress break will only result in a watered-down measure that does not contain the full reform measures that the thorough reform of the sin tax law demands.
Any sin tax measure that comes out of the break will surely be a half-baked one that will only remove the price classification freeze and update the 1996 matrix of prices that serve as the basis for computing taxes on alcohol products and cigarettes.
The removal of the price classification freeze is only a part of sin tax reform: Apart from this, there is a need to thoroughly correct the existing weaknesses in the sin tax law, as stated in the National Internal Revenue Code of 1997 (Republic Act 8424).
The reforms needed include a move to a simple unitary tax and the indexation of specific taxes to inflation or even to nominal GDP. Because tax administration in the Philippines is weak, the yearly tax leakage from cigarettes alone amounts to billions of pesos. The adoption of the simplest tax system for tobacco taxes is expected to correct this. Without indexation, sin taxes will be eroded by inflation, again creating fiscal problems in the near future.
Such reform measures are already contained in several bills filed by Rep. Mandanas’s colleagues, specifically the proposals of Rep. Abad (House Bill 3465); and Reps. Jocelyn Limkaichong, George Arnaiz and Pryde Henry Teves (House Bill 2687), and Rep. Neil Tupas (House Bill 3487).
We exhort Rep. Mandanas to execute his role as committee chairman properly by ensuring that these measures are studied thoroughly and incorporated into the final consolidated bill that will be reported by his committee.
AER therefore urges Rep. Mandanas to:
- Stop rushing the passage of a sin tax law.
- Discontinue his plan to hold hearings on sin taxes during the sine die adjournment of Congress.
- Ensure that the consolidated bill that passes his committee incorporates the three reforms cited above.
In his releases, Rep. Mandanas expressed fears that the non-passage of certain fiscal measures, including a sin tax bill, will cause the government to lose at least P100 billion in additional revenues. In earlier statements, he also warned that not passing a sin tax measure will cause the government to lose P25 billion to P30 billion a year on cigarette excise taxes.
However, we assure the solon—and the public—that our studies show that a more thorough reform of the tobacco tax system will raise more revenues and will do so more sustainably.
Indexation to inflation will ensure that revenues from tobacco taxes are sustained and robust enough to meet the government’s revenue efforts, and fund the PNoy administration’s urgent programs, including the Universal Health Coverage Program.
Filomeno S. Sta. Ana III
Action for Economic Reforms