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8/2/10	
  




        TOBACCO	
  TAX	
  	
  
      STRUCTURE	
  IN	
  THE	
  
         PHILIPPINES                          	
  




                Gil	
  S.	
  Beltran	
  
               Undersecretary	
  
            Department	
  of	
  Finance	
  

                  June	
  22,	
  2010	
  
                                                     1	
  




SUMMARY	
  OF	
  PRESENTATION	
  

     Overview

 Weaknesses of Current System

     Fiscal Situation

    Conclusion
                                                     2	
  




                                                                    1	
  
8/2/10	
  




                 Taxes	
  on	
  Tobacco	
  
                                                      2009	
  (PB)	
  
     Excise	
                                                   P24.2	
  	
  
     VAT	
  (est)	
                                               1.1	
  	
  	
  
     Total	
                                                    P25.3	
  	
  

                                                                                                    3	
  




       Excise Tax Structure: Tobacco	
  
                                                                   Republic Act 9334
                   Brackets                            2005         2007          2009         2011
Cigar: Per Cigar
     Net retail price per cigar is P500.00 or less                          10%
     Net retail price is more than P500.00           P50.00 + 15% of the net retail price in excess of
                                                                       P500.00
Cigarettes Packed by Hand                              2.00         2.23          2.47         2.72
Cigarettes Packed by Machine, if net retail
price per pack of 20
     a)  Over P10.00                                  25.00         26.06         27.16        28.30
     b) Over P6.50 but not over P10.00                10.35         10.88         11.43        12.00
     c) P5.00 but not over P6.50                       6.35         6.74          7.14         7.56
     d) Below P5.00                                    2.00         2.23          2.47         2.72

                                                                                                    4	
  




                                                                                                                   2	
  
8/2/10	
  




       Health-Related
    Earmarking Provisions
  2.5.% of incremental revenues from
excise tax on tobacco and alcohol for
PHILHEALTH for universal coverage
  2.5.% of incremental revenues from
excise tax on tobacco and alcohol for
DOH for disease prevention

P900M = 2005 to 2008 PHIC and
   DOH estimated share each             5	
  




  WEAKNESSES OF THE
 CURRENT MULTI-TIERED
       SYSTEM




                                                       3	
  
8/2/10	
  




• 	
  Creates	
  discre0on	
  for	
  the	
  
  taxing	
  authority	
  
        -­‐	
  The	
  rules	
  for	
  classifying	
  
             products	
  based	
  on	
  net	
  retail	
  
             price,	
  i.e.	
  valida0on	
  and	
  
             revalida0on	
  rules,	
  leaves	
  too	
  
             much	
  room	
  for	
  discre0on	
  




• Prone	
  to	
  downshi?ing	
  of	
  consump0on	
  /	
  repor0ng	
  
   from	
  high-­‐priced	
  brands	
  to	
  low-­‐priced	
  brands.
                                                                  	
  




                                                                                4	
  
8/2/10	
  




      • 	
  	
  	
  	
  Tax	
  eroded	
  by	
  infla0on	
  




• Congressional	
  protec0on	
  from	
  
  reclassifica0on	
  of	
  old	
  brands	
  
 	
  Has	
  caused	
  inequity	
  in	
  the	
  tax	
  
 treatment	
  of	
  cigareEe	
  products	
  
 	
  Has	
  constrained	
  government	
  
 revenues	
  due	
  to	
  inability	
  to	
  
 adjust	
  tax	
  rates	
  of	
  protected	
  
 brands	
  



                                                                    5	
  
8/2/10	
  




 • The	
  effec0ve	
  tax	
  burden	
  
   rela0ve	
  to	
  retail	
  price	
  	
  has	
  
   been	
  eroded	
  and	
  the	
  tax	
  
   becomes	
  more	
  ineffec0ve	
  as	
  a	
  
   tool	
  to	
  curb	
  consump0on.	
  




Brand 2004	
  
     	
                 2004	
          Effective	
        2008	
       2008	
       Effective	
  
          Retail	
       Tax	
           Burden	
          Retail	
      Tax	
       Burden	
  
                                       (Tax/Price)    	
                               (Tax/
          Price	
       Rate  	
                          Price	
  
                                                               	
       Rate  	
      Price) 	
  
   A 	
      8.32	
         1.12	
         14%	
           18.00	
        2.23	
       12%	
  
   B 	
     18.21	
         5.85	
         33%	
           39.50	
        6.79	
       18%	
  
   C	
      16.52	
         5.60	
         34%	
           30.75	
        6.74	
       22%	
  
   D 	
     13.93	
         5.60	
         41%	
           17.65	
        6.74	
       39%	
  
   E	
      18.77	
         8.96	
         48%	
           31.00	
       10.88	
       35%	
  
   F	
      22.15	
         8.96	
         41%	
           30.00	
       10.88	
       37%	
  
   G 	
     22.71	
         8.96	
         40%	
           30.00	
       10.88	
       37%	
  

   Notwithstanding	
  tax	
  increases,	
  effec0ve	
  	
  
    burden	
  has	
  declined	
  from	
  60%	
  in	
  1986	
  	
  



                                                                                                            6	
  
8/2/10	
  




In Billion Pesos




           Tax Collection as Percent of GDP   2007   2008
           Philippines                        14.0   14.1
           Indonesia                          12.4   16.0
           Malaysia                           14.8   18.0
           Singapore                          12.8   12.8
           Thailand                           18.0   14.4
           China                              18.3   18.3
           South Korea                        15.4   15.4
           Hongkong                           10.0   10.0
           India                              9.2    9.2
           Vietnam                            23.2   23.6
           ASEAN                              15.9   16.5
           AVERAGE                            14.8   15.2




                                                                   7	
  
8/2/10	
  




  Fiscal Situation: Cigarette Tax Incidence Lower
                  than Neighbors
           COUNTRY	
              EXCISE	
  INCIDENCE	
  
                                     (%	
  of	
  RSP)
                                                    	
  
   PHILIPPINES	
                           38% 	
  
   INDONESIA	
                             40%	
  
   THAILAND	
                              43%	
  
   SINGAPORE	
                             65%	
  
   VIETNAM	
                               45%	
  
   HONG	
  KONG	
                          56%	
  
   AUSTRALIA	
                             56%	
  
   UK	
                                    63%	
  
   AVERAGE	
                               51%	
  
                                                            15	
  




Conclusions:	
  	
  
Tobacco	
  Tax	
  Needs	
  to	
  be	
  Reformed	
  
 to:	
  
 Raise	
  Additional	
  Revenues	
  
 Simplify	
  Structure	
  and	
  Enhance	
  Equity	
  
 Enhance	
  Sumptuary	
  	
  Role	
  of	
  Tax	
  	
  




                                                            16	
  




                                                                            8	
  
8/2/10	
  




Thank	
  you!	
  




                           9	
  

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Dof usec beltran on phil tobacco tax

  • 1. 8/2/10   TOBACCO  TAX     STRUCTURE  IN  THE   PHILIPPINES   Gil  S.  Beltran   Undersecretary   Department  of  Finance   June  22,  2010   1   SUMMARY  OF  PRESENTATION     Overview  Weaknesses of Current System   Fiscal Situation   Conclusion 2   1  
  • 2. 8/2/10   Taxes  on  Tobacco   2009  (PB)   Excise   P24.2     VAT  (est)   1.1       Total   P25.3     3   Excise Tax Structure: Tobacco   Republic Act 9334 Brackets 2005 2007 2009 2011 Cigar: Per Cigar Net retail price per cigar is P500.00 or less 10% Net retail price is more than P500.00 P50.00 + 15% of the net retail price in excess of P500.00 Cigarettes Packed by Hand 2.00 2.23 2.47 2.72 Cigarettes Packed by Machine, if net retail price per pack of 20 a)  Over P10.00 25.00 26.06 27.16 28.30 b) Over P6.50 but not over P10.00 10.35 10.88 11.43 12.00 c) P5.00 but not over P6.50 6.35 6.74 7.14 7.56 d) Below P5.00 2.00 2.23 2.47 2.72 4   2  
  • 3. 8/2/10   Health-Related Earmarking Provisions   2.5.% of incremental revenues from excise tax on tobacco and alcohol for PHILHEALTH for universal coverage   2.5.% of incremental revenues from excise tax on tobacco and alcohol for DOH for disease prevention P900M = 2005 to 2008 PHIC and DOH estimated share each 5   WEAKNESSES OF THE CURRENT MULTI-TIERED SYSTEM 3  
  • 4. 8/2/10   •   Creates  discre0on  for  the   taxing  authority   -­‐  The  rules  for  classifying   products  based  on  net  retail   price,  i.e.  valida0on  and   revalida0on  rules,  leaves  too   much  room  for  discre0on   • Prone  to  downshi?ing  of  consump0on  /  repor0ng   from  high-­‐priced  brands  to  low-­‐priced  brands.   4  
  • 5. 8/2/10   •         Tax  eroded  by  infla0on   • Congressional  protec0on  from   reclassifica0on  of  old  brands      Has  caused  inequity  in  the  tax   treatment  of  cigareEe  products      Has  constrained  government   revenues  due  to  inability  to   adjust  tax  rates  of  protected   brands   5  
  • 6. 8/2/10   • The  effec0ve  tax  burden   rela0ve  to  retail  price    has   been  eroded  and  the  tax   becomes  more  ineffec0ve  as  a   tool  to  curb  consump0on.   Brand 2004     2004   Effective   2008   2008   Effective   Retail   Tax   Burden   Retail   Tax   Burden   (Tax/Price)   (Tax/ Price   Rate   Price     Rate   Price)   A   8.32   1.12   14%   18.00   2.23   12%   B   18.21   5.85   33%   39.50   6.79   18%   C   16.52   5.60   34%   30.75   6.74   22%   D   13.93   5.60   41%   17.65   6.74   39%   E   18.77   8.96   48%   31.00   10.88   35%   F   22.15   8.96   41%   30.00   10.88   37%   G   22.71   8.96   40%   30.00   10.88   37%   Notwithstanding  tax  increases,  effec0ve     burden  has  declined  from  60%  in  1986     6  
  • 7. 8/2/10   In Billion Pesos Tax Collection as Percent of GDP 2007 2008 Philippines 14.0 14.1 Indonesia 12.4 16.0 Malaysia 14.8 18.0 Singapore 12.8 12.8 Thailand 18.0 14.4 China 18.3 18.3 South Korea 15.4 15.4 Hongkong 10.0 10.0 India 9.2 9.2 Vietnam 23.2 23.6 ASEAN 15.9 16.5 AVERAGE 14.8 15.2 7  
  • 8. 8/2/10   Fiscal Situation: Cigarette Tax Incidence Lower than Neighbors COUNTRY   EXCISE  INCIDENCE   (%  of  RSP)   PHILIPPINES   38%   INDONESIA   40%   THAILAND   43%   SINGAPORE   65%   VIETNAM   45%   HONG  KONG   56%   AUSTRALIA   56%   UK   63%   AVERAGE   51%   15   Conclusions:     Tobacco  Tax  Needs  to  be  Reformed   to:    Raise  Additional  Revenues    Simplify  Structure  and  Enhance  Equity    Enhance  Sumptuary    Role  of  Tax     16   8