“Sin Tax” Collections Down in Philippines

May 6, 2012 Taxation in Philippines

Sin Taxes on Cigarettes and Alcohol in PhilippinesMANILA – Collections of the so-called “sin taxes” levied on “sinful” products, such as cigarettes and alcohol, dropped in 2011, leading to calls for a reform of the excise tax system.

Over the weekend the Department of Finance of the Philippines released new data showing that in 2011 collections of excise taxes on tobacco and alcohol products only reached PHP 25.4 billion, nearly 20 percent less than the collections seen in 2010.

Commenting on the decline in the revenues, the Finance undersecretary Jeremias Paul said that, “…this fall in revenues proves that our current excise tax scheme for tobacco is structurally flawed, and is in need of immediate changes.”

He also explained that current legislations mandate that the excise taxes charged on tobacco products and alcohol are increased every second year, and manufacturers “frontload” their sales into periods before the hikes, thereby lowering their overall tax liabilities. The producers’ behaviour leads to the government seeing a biannual drop in the level of revenues raised from these excises. Jeremias Paul said that between 2006 and 2010 the government has lost at least PHP 19.5 billion in potential revenues due to the loopholes in the excise system.

Under current regulations, the excises levied on “sinful” products are based on their historic sale price in 1997. The government is currently mulling a new proposal which would see the rate of excise be based on the current sale price of the goods. If accepted, the changes would lead to many tobacco and alcohol manufacturers in the Philippines seeing the taxes on the sale of their products greatly increase.

Photo by clspeace