Taxing vices

After so much hemming and hawing, the Aquino administration is now asking Congress to restructure the excise tax system on tobacco products and alcoholic drinks. But administration officials, ever mindful of President Aquino’s campaign pledge not to raise taxes, are careful to play down the revenue-raising aspect of the bill, one of the 13 priority measures of the administration. Mr. Aquino himself said, “With the sin taxes, there is no question about our ultimate aim: to decrease the consumption of sin products.”

That aim will be achieved, however, through the one proven and effective way of dampening demand for any product in the market, which is by raising the tax rate and consequently pushing its price up. Still the proposed measure, with its graduated rate increases, will allow the government to rake in higher revenues before the prices of such sin products spiral beyond the reach of most consumers. Finance officials estimate that the government can collect P60 billion yearly from the revised sin taxes, or about 30 percent more than the P46 billion projected collection from the same sources this year.

Under the present specific tax system, beer and similar products are taxed anywhere between P8.27 and P16.33 per liter, depending on the price of the product. The new measure will raise the tax to P25 per liter regardless of its price. At present, distilled spirits such as whiskey, brandy, rum and gin are taxed P11.65 per “proof liter” if they are made from coconut, nipa or sugarcane, while those made from other raw materials are taxed anywhere between P126 and P504. Under the new measure such drinks will be taxed P42 next year, P80 in 2013, and P150 in 2014, if these contain not more than 45 percent alcohol, and P150, P234, and P317, respectively, if they contain more than 45 percent alcohol.

On the other hand, manufacturers of cigarettes packed by hand pay only P2.72 per pack today. They will have to pay P14 next year, P22 in 2013, and P30 in 2014 under the proposed measure. Those making cigarettes by machine, which are now paying P12 or P28.30 per pack depending on the prices of their cigarettes, will have to pay P30 if their cigarettes cost more than P10, but if their cigarettes cost P10 or less, they will have to P14 in 2012, P22 in 2013 and P30 in 2014.

The existing tax rates were set way back in 1996. The rates being proposed reflect current prices, according to the Department of Finance. And this will not be the end of the tax increases. After 2014, the rates will be adjusted based on the inflation rate.

Under the proposed measure, the rates will be uniform for similar products after three years, simplifying the computation and collection of the taxes. The basic principle is that the more you smoke or drink the more you pay, regardless of the quality of the product.

If this makes the system regressive, that is probably intentional. The thinking seems to be that those who can least afford to pay for their vices need the least encouragement to maintain them through lower prices. When they smoke and drink they are a burden to their families, and when they are taken ill they become a burden to society.

Filipino taxpayers pay a heavy price for tolerating these habits. Cigar and cigarette companies are expected to pay P23.6 billion in taxes this year. But it has been estimated that government hospitals spend P235 billion yearly to treat illnesses that are linked to smoking, like heart diseases, emphysema and lung cancer. And we are not even counting alcohol-related diseases yet.

So whether it is to raise taxes or curb vices, this is one piece of legislation that merits serious consideration by Congress. And the time to enact it is now during the current session, when our lawmakers are still not too preoccupied with ensuring their reelection. If the deliberations drag until next year, it is doubtful if our congressmen and senators will be willing to risk losing brownie points with the voters or strong enough to refuse the blandishments of the powerful tobacco and alcohol lobby.