Manila, Philippines, May 24, 2011:  The Action for Economic Reforms (AER) is one with Rep. Hermilando Mandanas, chairman of the House of Representatives Ways and Means Committee, in passing a sin tax bill to raise government revenue from tobacco and alcohol taxes toward financing health and other development objectives.


Nevertheless, we urge him not to unduly hasten the process and to ensure that the full reform measures contained in the bills sponsored by other Representatives are studied thoroughly and incorporated into the consolidated bill that will be debated when Congress resumes in July.


At the Ways and Means committee meeting on Monday (23 May 2011), Mandanas pushed to expedite the drafting of a substitute sin tax bill. The draft will be ready on Wednesday (25 May 2011) and will be discussed in next Monday’s (30 May 2011) committee meeting.


Mandanas’s proposal, House Bill 3059, will remove the price classification freeze and update the 1996 matrix of prices that serve as the basis for computing taxes on alcohol and cigarettes.


While we welcome his proposal to remove the price classification freeze, we are concerned that this measure alone falls short of having a law that will ensure sustained, robust revenues. The Mandanas proposal by itself without the other reforms articulated by other Representatives as well as by the Department of Finance and Department of Health will cause problems because it does not address the other structural defects in the law.


Therefore, we urge Rep. Mandanas to go beyond a piece-meal reform and to put in place a more thorough correction of the weaknesses in the sin tax law, as stated in the National Internal Revenue Code of 1997 (Republic Act 8242). Apart from the removal of the price classification freeze, the reforms include a move to a simple unitary tax and to index the specific taxes to inflation or even to nominal GDP.


Without indexation, the sin taxes will be eroded by inflation, which will thus create again fiscal problems in the near future.


AER appeals to Rep. Mandanas to incorporate into the consolidated bill the reforms cited above. Such provisions are found in several bills filed by Rep. Mandanas’s colleagues, specifically the bills of Rep. Henedina Abad (House Bill 3465); Rep. Neil Tupas (House Bill 3487); and Reps. Jocelyn Limkaichong, George Arnaiz and Pryde Henry Teves (House Bill 2687).


While Rep. Mandanas says that the passage of his bill will increase revenues on cigarette excise taxes by P25 billion to P30 billion a year, AER 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 enough to meet the government’s revenue efforts, and fund the administration’s urgent programs, including the Universal Health Coverage Program.