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Health, revenue, fairness

/ 12:25 AM October 25, 2012

(Concluded from last week)

As to protecting farmers and workers in tobacco factories, do we care more about someone’s job than someone’s life? One would certainly hope not. But that’s what Philip Morris Fortune Tobacco Corp. (PMFTC) and the Philippine Tobacco Institute (PTI) are claiming. They consider jobs more important than life.

Despite that, the threat to jobs is nonexistent, anyway; it’s a distortion by vested interests. Take manufacturing first. Cigarette companies pay taxes based on 1996 prices (with a below-inflation increase) but make 2012 profits. Is it any wonder they are fighting so vociferously to maintain the status quo, or close to it? But they of course dissemble by using other arguments. For instance, PM has a plant in Batangas and claims workers will lose jobs as volume falls. But a third of that plant’s production is for export, and with PM’s international access, markets can easily be increased. So jobs don’t have to be lost, PM can just export more.


As to tobacco farmers, they used to earn P74-95/kilo for tobacco leaves, but after PM combined with Fortune Tobacco in  2010, the price fell to P68/kilo. Now PMFTC argues that prices were high prior to the merger only because there was a worldwide shortage of tobacco and an increase in costs of farm inputs. And when the market normalized, the decline in price was expected. But it certainly doesn’t look good, does it? It looks more like the action of a monopoly, doesn’t it?

The PTI claims that the tobacco industry employs 840,146 farmers (it later said that number is farmers plus dependents). As Winnie Monsod points out, given that tobacco farming covers 32,235 hectares, that would mean 26 farmers would share the P80,000 in annual revenues per hectare. That, of course, is absurd because that will just be about P3,000 for each farmer per year.

Government statistics say there are 54,000 tobacco farmers. If you assume the national average of four dependents in a family, that equates to 270,000 people (equal to three years of dead Filipinos). A far cry from what the PTI claims. Where did they get their number? Perhaps they’ll tell us.

Look at some numbers. A study done in 2006 by the Southeast Asia Tobacco Control Alliance among farmers in North Luzon showed that with enough resources and assistance from the government, they were willing to shift to other crops that yield higher returns than tobacco. The survey results showed that farmers of Virginia tobacco only earned P51,642/hectare. Meanwhile, those who planted bitter gourd and tomato earned P158,640/hectare and P116, 204/hectare, respectively.

The government will allot P4.7 billion (if the revised Abaya bill is passed) to supporting the farmers. This will be on top of the 15 percent of tax collection on locally manufactured Virginia-type cigarettes that go to cooperative, agro-industrial (postharvest, secondary processing) and infrastructure projects for farmers in tobacco-producing provinces (mandated by Republic Act 7171). Under RA 8240, provinces producing burley and native tobacco also get 15 percent of the incremental revenue collected from the excise tax on tobacco products depending on their level of tobacco leaf production. Thus, tobacco farmers will be well protected.

Then there’s the argument of fairness. Some quarters are saying that the Abaya bill favors imports over local production, that it threatens local production because the price of imported premium brands will almost be equal to local cigarettes, thus edging out local manufacturers from the market. I fail to see how. Are they saying local manufacturers produce an inferior product, so the customer must pay more to support them? That goes against the government’s primary policy—to create a level playing field, where tariffs are minimal, ideally nonexistent. And that is the trend. And anyway tariffs are the way to differentiate, not distortions in a tax law.

As it now stands, the law is so grossly distorted to favor a couple of local manufacturers it’s incredible it took this long to do something about it. If you were here in 1996, you pay one tax; if you come in later, you pay a much higher one. Marlboro pays a tax of P12, Lucky Strike (of British American Tobacco) pays P28.30 for an equivalent quality cigarette. Is that fair? And based on what? Purely the date at which you entered the market. If that’s not unfair discrimination, I don’t know what is.

The version released by Sen. Ralph Recto’s committee would have also imposed a new distortion as it pushed for three tiers instead of only two. This would have allowed many high-priced brands to move to the medium-price bracket. Thus, premium brands would have been taxed even lower than they are now. Is that a way to discourage smoking? Is that a way to raise revenues?


There’s another issue that should be raised: monopoly. The Constitution says: “The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of grade or unfair competition shall be allowed.” Philip Morris joint-ventured with Fortune Tobacco to capture 94 percent of the market. If that’s not a monopoly, I don’t know what is. Why is it allowed? Why do those two companies violate what the Filipino people wanted when they voted their Constitution? They shouldn’t need a law to force them to act with a social conscience.

This is a law that must be passed, preferably in its original Abaya form alternatively as approved by the House. Only in that form will it save lives, raise revenues, and create a fair market.

My apologies for writing much of what I’ve written before. But this is far too important an issue and it’s now under threat by unscrupulous characters. The true situation must be repeated.

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TAGS: column, jobs, Peter Wallace, taxes, tobacco industry
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