Need for higher excise tax to correct anomaly

This is in reaction to the letter “Invitation to smuggle” (Inquirer, 9/3/11)  which warned that a restructuring of the cigarette excise tax system, as proposed by Rep. Henedina Abad in House Bill 3465 will be detrimental to the country.

The article pointed to Malaysia’s and Singapore’s experience to prove that increasing the excise tax on cigarettes would open the floodgates to smuggling and to the proliferation of illicit products.

However, it is important to note the difference between the Malaysian/Singapore experience and what is being proposed here in the Philippines, and this the article itself suggests.  In those two countries, the increase in the volume of illicit products traded in the market followed numerous large increases (“In  Malaysia, tax rates on cigarettes were raised by an average of 24 percent from 2004 to 2010.”)  On the contrary, HB 3465 proposes a one-time  large increase, which has become necessary by the fact that current tax rates are still based on 1996 prices and have to be updated to reflect  current realities. Thereafter the tax rates will be pegged to inflation.

There is no denying that a potential growth in smuggled and counterfeit products could be a problem that government needs to manage to protect its fiscal, health and agricultural goals. But this should not overshadow the fact that there is a need to reform the cigarette excise system. For 15 years now or since 1996, only a few brands enjoy the “legislative protection” of   permanent excise classification. A “protected” brand that sold then at P10 is now selling at more than P20, yet is still considered a low-price brand and pays only P2 per pack. Theoretically,  it can increase its price to P100 per pack and still pay the same tax.

At the very least, government needs to correct this irregularity.

—ROBERT EUGENIO,

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