Philip Morris says single-tier tax system more efficient: AER

THE MAIN company opposing the much-needed excise tax reform in the country was once its staunch advocate.

Philip Morris Philippines Manufacturing, which previously competed against Fortune Tobacco Corp. in the country, lobbied for a single-tier tax system back in 2003 when it still has not controlled more than 90% of the Philippine market, the Action for Economic Reforms (AER) said.

“We got a copy of a letter from Philip Morris to then president Gloria Macapagal-Arroyo expressing their support to having a single-tier tax system for tobacco,” AER senior economist Jo-Ann Latuja said.

“This letter confirms our doubts that Philip Morris, which was once an advocate of excise tax reform, is protecting no one but its own personal causes for opposing the similar reform it had fought for in the past,” she added.

“Their (Philip Morris) unusual backtracking speaks so much of it. Clearly, Philip Morris is after its own profit and not of anybody else, in switching side on this issue,” she stressed.

In 2010, Philip Morris, Inc. merged with Fortune Tobacco Corp., enabling it to corner more than 90% of the Philippine tobacco market. The company now is one of the most critical voices against House Bill (HB) 5727 that will trim the four-tier tobacco industry to one with the adoption of a unitary tax system. The bill is currently pending before the House Ways and Means Committee.

In its three-page letter dated February 5, 2003, Philip Morris argued that a single-tier system “should result in an increase excise tax collection” and “promote a level playing field for all manufacturers.”

“In brief, our proposal is that the current four tier specific system should be changed to a single tier specific system over a period of three years,” the letter, signed by former General Manager George Farah, explained.

“In the first year, two specific tax tiers should replace the current four-tier system, with a reduction in the gap between the two tax tiers in the second year. In the third year, the two specific tax tiers should be merged into a single specific rate applied equally on all cigarettes,” the letter said further.

Philip Morris added that with a single tax rate, tax administration will be easier “since only the volume of cigarettes sold, and not the price at which they are classified, shall be the sole determinant of tax revenues to the government.”

The letter was sent as an unsolicited recommendation to the government during deliberations of HB 5057, which would have indexed tobacco prices to inflation, but retained the four-tier system.

It is worth noting that Philip Morris’s recommendations were the same proposal made by the government under HB 5727, where a three-year transition period to a unitary rate was outlined.

“This explicit show of support from Philip Morris in 2003 only strengthens our resolve to push through with this vital reform,” Latuja said.

 

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For a copy of the letter, click here.

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