Golden goose with rotten eggs?

This is a rejoinder to the letter (“Need for higher excise tax to correct anomaly,” Inquirer, 9/9/11) of Robert Eugenio who appears to be a Hong Kong-based official of British American Tobacco (BAT), makers of Lucky Strike, among other cigarettes. Not one of BAT’s products is made by Filipino labor. With Lucky Strike, BAT tried in the recent past to dent the local market unsuccessfully.

Luckily so: Every level of success that imported cigarettes could achieve  in the country is an insult to Philippine competitiveness. More important, it takes away jobs and food from the dining table of Filipino workers and farmers in the tobacco industry.

Precisely, the inability of an imported brand to compete with locally made cigarettes is a tribute to the current configuration of the cigarette excise system. It is therefore perfectly understandable why Eugenio wants excise taxes changed. The idea is consistent with British-American T-shirt wisdom: “If you can’t win the game, change the rules.”

With Rep. Henedina Abad’s House Bill 3465, BAT’s gains are multifold. By collapsing the current four tax tiers into one where an onerous unitary tax will apply, BAT will be able to masterfully kill all low-cost local cigarettes bar none in one fell swoop. What does BAT care about the ensuing loss of thousands of jobs? It is just collateral damage to pave the way for the glorious entry of Lucky Strike, Dunhill, Kent and Pall Mall, each of them premium-priced.

To ensure that prices go hundreds of percent higher, Eugenio sheds crocodile tears, saying current excise taxes are still based on 1996 prices. The fact that excise taxes have since been upgraded based on inflation is completely forgotten.

If passed into law, HB 3465 will open the floodgates to the illicit trade of contraband cigarettes, in particular cheap, untaxed tobacco brands from China, to fill the yawning gap in demand for budget-priced cigarettes that Abad’s law will create. Less tax will be collected, too, which Eugenio does not deny, saying that resultant smuggling “could be a problem that government needs to manage.” Clearly, Eugenio does not realize the predicaments of the Philippine customs bureau. It’s like saying that’s not our problem because BAT only sells premium cigarettes.

To shed more light on the issue, here’s the lowdown on Philippine excise taxes. Of the BIR’s three tax classifications, which include income tax and VAT, excise tax was the only tax classification that met and exceeded internal revenue objectives by 22 percent last year when it contributed P67.2 billion to government coffers. Without any change in the excise tax law this year, more will be collected even as other tax classifications continue to falter.

In a nutshell, the current excise tax system is the goose that lays the golden eggs. Fooling around with it with misguided legislation (resulting in onerous increases) will make it lay rotten eggs. If this happens, BAT won’t be eating the rotten eggs. The Filipino people will.

—MIGUEL C. LOPEZ, chair,

Caucus for Philippine Competitiveness, [email protected]