SENATE OF THE PHILIPPINES COMMITTEE ON WAYS & MEANS

Senate Bill 3299 under Committee Report 411 October 10, 2012

O/S Recto

The measure we are about to debate poses a deterrent that will KEEP PEOPLE FROM BEING SICK and will GENERATE REVENUES that will TREAT THEM when they get sick.

O/S Recto

Taxation
is what makes

appropriations
possible.

O/S Recto

BIR 2013 Collections

P1.3T Billion
P75 Billion ~P20.00

BIR 2013 Excise Tax Collections

P1.00 for every P20.00 from sin products

O/S Recto

Taxes Collected (in Php) from Alcohol and Tobacco 100 Years Ago

1912
Distilled Spirits 3,049,684

Wines and Imitation Wines

Fermented Liquors ALCOHOL Sub- Total Smoking and Chewing Tobacco Cigars Cigarettes

173,391
202,178 3,425,254 283,025 255,700 4,378,680

TOBACCO Sub-Total
GRAND TOTAL

4,917,406

8,908,788
O/S Recto

Source: Report of the Philippine Commission to the Secretary of War, FY 1912

P8.6 B
Excise Taxes Paid (2011)

Firemen and fire trucks

(BJMP Budget)

O/S Recto

P1.5 B
Excise Taxes Paid (2011)

classrooms
O/S Recto

P1.0 B
Excise Taxes Paid (2011)

pension of senior citizens

O/S Recto

A government in need of money would always prefer a TAXABLE VICE, like drinking, to a tax-exempt virtue like staying sober.

O/S Recto

ALCOHOL INDUSTRY Product Classifications

Gin Whisky

DISTILLED SPIRITS
Brandy Rum Vodka

Tequila

Siok Tong

Sparkling wine

Champagne

WINES

Still wine

Fortified Wine

Beer

Lager

FERMENTED LIQUOR
Ale Porter

Basi

Tapuy
O/S Recto

2011 Volume of Removals

DISTILLED SPIRITS 255 million liter s FERMENTED LIQUOR

1.56 billion liter s or 4.7 billion bottles

17.4 liter s per per son

O/S Recto

Gr oss Sales (2011)

ALCOHOL INDUSTRY

TOTAL

P124 B
Fermented Liquor Distilled Spirits

P67 B

P57 B

Wines P 263 M
Source: BIR O/S Recto

Tot al Taxes Paid (2011)

ALCOHOL INDUSTRY

TOTAL

P42 B
Fermented Liquor

P30 B

Distilled Spirits

P12 B*

P 35 M**
Source: BIR

Wines

O/S Recto *includes BOC data; Source: DSAP ** excise tax only (no data for other taxes paid)

TAX BURDEN ON FERMENTED LIQUOR (2011)

Excise
VAT

19 B 28% 6 B 9%

Income & other taxes

5 B 8%

TOTAL

30 B45%
O/S Recto

Tot al Taxes Paid (2011)

ALCOHOL INDUSTRY

TOTAL

P42 B
Fermented Liquor

P30 B

Distilled Spirits

P12 B*

P 35 M**
Source: BIR

Wines

O/S Recto *includes BOC data; Source: DSAP ** excise tax only (no data for other taxes paid)

TAX BURDEN ON DISTILLED SPIRITS (2011)

Excise
VAT
Income & other taxes

5.2 B

9% 3%

5.2 B* 9%

1.6 B

TOTAL
*with BOC data Source: BIR

12 B 21%
O/S Recto

Tax Burden of Selected Industries (2011)

Alcohol 34%*
Telecoms 15%
*with BOC data Source: BIR

Power 15%
Automobile

4%
O/S Recto

CURRENT TAX RATES

Distilled Spirits
1 . F R O M LO C A L S O U RC E S ( s a p o f n i p a , c o c o n u t , c a s s av a , c a m o te o r b u r i p a l m o r f ro m t h e j u i c e , s y r u p o r s u g a r o f t h e cane) 2 . F RO M R AW M AT E R I A L S OT H E R T H A N THOSE E N U M E R AT E D A B OV E N e t r e t a i l p r i c e ( N R P ) [ exc l u d i n g t h e exc i s e a n d VAT ] p e r b o t t l e o f 7 5 0 m l v o l u m e c a p a c i t y i s : Less than P250.00 P250.00 to P675.00 More than P675.00

P 14.68

P 158.73 P 317. 4 4 P 634.90

O/S Recto

CURRENT TAX RATES

Wines
1. SPARKLING WINES/ CHAMPAGNES
Net Retail Price, per bottle, regardless of proof:

P500.00 or less More than P500.00

P 183.42 P 550.24 P 22.00 P 44.02 Same as distilled spirits

2. STILL WINES
Less than 14% of alcohol by volume 14% to 25% of alcohol by volume

3. FORTIFIED WINES
More than 25% of alcohol by volume

O/S Recto

CURRENT TAX RATES

Fermented Liquor
1. Beer, lager beer, ale, porter and other fermented liquors except domestic fermented liquor (e.g. tuba, basi, tupuy) Net Retail Price, per liter of volume capacity : Less than P14.50 (low) P 14.50 to P 22.00 (medium) More than P22.00 (high) 2. Fermented liquor brewed and sold at micro breweries, pubs, restaurants P 10.42 P 15.49 P 20.57

P 20.57

O/S Recto

2011 Major Corporations ALCOHOLINDUSTRY

Source: DSAP, August 2012

Source: BIR
O/S Recto

ALCOHOL INDUSTRY
Distilled Spirits
Emperador Distillers

Fermented Liquor
San Miguel Breweries Inc.

Ginebra San Miguel, Inc.

Tanduay Distillers

Asia Brewery Inc.

Destileria Limtuaco & Co.
Source: DSAP, August 2012 Source: BIR
O/S Recto

PERCENTAGE OF ALCOHOL EXPENDITURE

Family Income and Expenditure Sur vey (1994 -2009)

0.9

0.9

0.7

0.7

0.7

0.7

1994

1997

2000

2003

2006

2009
O/S Recto

17.3 million smokers

2009

2011 92 billion sticks/ 4.6 billion packs

O/S Recto *Source: DOF

92% sold in sari-sari stores

Per capita consumption: 13 sticks 60% sold by tingi

Source: PMFTC (2012, 1st Half) O/S Recto

Gr oss Sales (2011)

TOBACCO INDUSTRY

Manufactured Tobacco

P827 M

TOTAL

P89.3 B

P75.6 M

Cigars

Cigarettes Packed by Hand (in 30s)

P1.4 B

Cigarettes Packed by Machine (in 20s)

P87 B

Source: BIR

O/S Recto

Gr oss Sales (2011)

TOBACCO INDUSTRY

Manufactured Tobacco

0.9%

TOTAL

P89.3 B

0.08%

Cigars

Cigarettes Packed by Hand (in 30s)

1.6%

Cigarettes Packed by Machine (in 20s)

97.4%

Source: BIR

O/S Recto

TAX BURDEN ON TOBACCO

Excise
VAT
Income & other taxes

25.8 B 5.6 B

4.2 B 35.6 B
O/S Recto

TOTAL

PERCENTAGE OF TOBACCO EXPENDITURE

Family Income and Expenditure Sur vey (1994 -2009)

1.4

1.3 1.1 1.1 0.9

0.8
2009
O/S Recto

1994

1997

2000

2003

2006

TAX BURDEN ON TOBACCO

Excise
VAT
Income & other taxes

29% 6% 5% 40%
O/S Recto

of every

TOTAL

CURRENT TAX RATES

Tobacco Products Tobacco not for chewing Tobacco for chewing

Tobacco Products & Cigar s

P 1.19 P 0.94

Cigars NRP per piece:

P500.00 OR LESS More than P500.00 10% OF THE NRP P 50.00 + 15% of the NRP in excess of P 500.00

O/S Recto

CURRENT TAX RATES

Cigarettes

Cigarettes packed by hand (in 30s) Cigarettes packed by machine (in 20s) Net Retail Price
Below P5.00 (Low) P5.00 to P6.50 (Medium) More than P6.50 to P10.00 (High) More than P10.00 (Premium)

P 2.72

P 2.72
P 7.56 P 12.00 P 28.30

O/S Recto

CIGARETTES (PACKED BY MACHINE)

Tier/ Tax Rate Low P2.72 Medium P7.56 High P12.00 Premium P28.30 Total
Source: DOF

Removals (packs)

Excise Taxes Collected (Php)

3.0 B 451 M 1.15 B 4.60 B

8.1 B 3.4 B 13.9 B 25.4 B

O/S Recto

CIGARETTES (PACKED BY MACHINE)

Tier/ Tax Rate Low P2.72 Medium P7.56 High P12.00 Premium P28.30 Total
Source: DOF

Removals (packs)

Excise Taxes Collected (Php)

3.0 B 451 M 1.15 B 4.60 B

8.1 B 3.4 B 13.9 B 25.4 B

O/S Recto

2011
Cigarettes
Philip Morris Fortune Tobacco Corp. Inc. (PMFTC) Japan Tobacco International (JTI) Mighty Corp. La Suerte Cigar and Cigarette Factory Associated Anglo-American Tobacco Corp. British American Tobacco
Source: BIR

94.12% 2.59% 2.12% 0.66% 0.51% --O/S Recto

Companies are just

COLLECTING AGENTS
of the government.

O/S Recto

Under our system, it is the CONSUMERS, NOT THE MANUFACTURERS, who eventually shoulder the excise tax, on account of its nature as a PASS-ON TAX.
O/S Recto

The ones who will ultimately bear the additional tax burden are ORDINARY FOLKS.

O/S Recto

It is not BIG TOBACCO or the GIANT BREWERY who will pay but, SMALL PEOPLE.

O/S Recto

O/S Recto

Cigarette smoking, like a cigarette butt, should be crushed.

But in the real world, IMPOSSIBLE.

O/S Recto

If we ban cigarettes, this government will weaken from lack of cigarette taxes. That would be the real FISCAL SHOCK.

O/S Recto

It seeks to get

MORE BUCKS out of FEWER PACKS.

O/S Recto

A HIGHER TAX RATE DOES NOT

automatically result in

HIGHER COLLECTIONS.

O/S Recto

The void will be filled by SMUGGLERS.

O/S Recto

COUNTRY CASE STUDIES ON ILLICIT TRADE

o

CANADA high excise levels (22%), increased consumption of illicit cigarettes, undermined regulatory & fiscal objectives. HUNGARY sharp, above-inflation increase in excise rate led to increased revenues initially but eventually to a revenue decline. IRELAND steep excise tax increase resulted in swift emergence of illicit trade, virtually flat cigarette duty revenues.
O/S Recto

COUNTRY CASE STUDIES ON ILLICIT TRADE

o

MALAYSIA staggering increase in excise tax (in 2011, 172% of 2004 rates) led to illicit trade growing to almost 40% of the market. NEW YORK excise duty hikes above underlying inflation level led to a sharp drop in legal volumes, decline in government revenues, decreased smoking incidence and illicit trade reaching almost 40% of the market.

ROMANIA continuous massive excise increases, increased government revenue, constant smoking incidence, illicit trade is more than of total consumption.
O/S Recto

COUNTRY CASE STUDIES ON ILLICIT TRADE

o

SINGAPORE 135% increase in 2005 over 2000, declining government revenues despite tax increase, smoking incidence was virtually unchanged from 2001, illicit trade grew. SWEDEN reduction in excise rates used to counter extreme levels of illicit trade (late 1990s); massive increase led to increased illicit trade (2007 and 2008) and reduction in total cigarette consumption.

UNITED KINGDOM duty escalator tobacco taxation led to down-shifting by consumers, increased illicit trade, government revenue loss but with no impact on smoking
O/S Recto

The tax-induced increase in cigarettes will certainly lead to smuggling or illicit trade. It might even lead to some illegal cigarette manufacturing within the country. The net incremental revenues should take into account the additional expenses on the part of the government to improve anti-smuggling efforts.
-- Dr. Benjamin Diokno

O/S Recto

Are we willing to OUTSOURCE even the MANUFACTURE OF SIN to distant lands?

O/S Recto

Use taxes as a deterrent to the consumption of unhealthy products Create predictable, dependable, and reliable stream of revenues
Eliminate the annexes Herald the imposition of a unitary tax rate

Index tax increases to inflation

Earmark portion of the proceeds to health care programs
O/S Recto

O/S Recto

Newly-introduced products shall be initially classified using the suggested NRP as declared in the sworn statement submitted to the BIR.

O/S Recto

We believe that the variety of products sold should beget a variation of taxes.

O/S Recto

We adopted a CONSERVATIVE FRAMEWORK that we believe hedges CLOSER TO REALITY.

O/S Recto

Reasonable Realistic and Responsible rendering of our power to tax the industry of alcohol and cigarettes.

O/S Recto

INCREMENTAL REVENUE (HB 5727 ORIGINAL)

Original Revenue Estimates
Year Cigarettes Distilled Spirits Fermented Liquor 19.35 B 21.68 B 24.14 B 26.73 B 29.59 B 121.49 B Total

2012 2013 2014 2015 2016 Total

30.13 B 36.10 B 41.27 B 43.36 B 45.51 B 196.37 B

11.19 B 26.51 B 52.99 B 58.35 B 64.24 B 213.27 B

60.66 B 84.28 B 118.40 B 128.45 B 139.33 B 531.12 B

Source: DOF

O/S Recto

INCREMENTAL REVENUE (HB 5727 ORIGINAL)

Revised Revenue Estimates (in Billion Php) Distilled Spirits Fermented Liquor

Elasticity

Cigarettes

Total

-0.584

16.54

6.71

18.61

41.85

-0.727
-0.870

7.10
-1.91

6.71
6.71

18.61
18.61

32.42
23.41

Assumptions: Average Industry Growth: 1.97% Cigarettes, 2.62% Fermented Liquor, 3.69% Distilled Spirits (1997-2011)
Source: DOF O/S Recto

O/S Recto

Cut-offs increased by 8%

O/S Recto

O/S Recto

Cut-offs increased by 8%

O/S Recto

INCREMENTAL REVENUE (SENATE COMM. REPORT)

(in Billion Php)

Year

Distilled Spirits

Fermented Liquor

Cigarettes

Total

2013

1.38

Source: DOF

O/S Recto

O/S Recto

INCREMENTAL REVENUE (SENATE COMM. REPORT)

(in Billion Php)

Year

Distilled Spirits

Fermented Liquor

Cigarettes

Total

2013

1.38

3.81

Source: DOF

O/S Recto

O/S Recto

O/S Recto

4 tiers

3 tiers

2 tiers

O/S Recto

O/S Recto

NET RETAIL PRICE CUTOFFS

CIGARETTES
LOW MEDIUM HIGH

< P15

P15-P18

> P18

O/S Recto

O/S Recto

INCREMENTAL REVENUE (SENATE COMM. REPORT)

(in Billion Php)

Year

Distilled Spirits

Fermented Liquor

Cigarettes

Total

2013

1.38

3.81

9.79

Source: DOF

O/S Recto

INCREMENTAL REVENUE (SENATE COMM. REPORT)

(in Billion Php)

Year

Distilled Spirits

Fermented Liquor

Cigarettes

Total

2013

1.38

3.81

9.79

14.98

Source: DOF

O/S Recto

HB 5727 (AMENDED)
Range Cigarettes Alcohol TOTAL -0.4 B -5.6 B 5.2 B 11 B 5.8 B
Attachment

Attachment Year: 2013 Elasticity: -0.584

O/S Recto

Cut-offs increased by 8%

O/S Recto

Our proposal is not just to earmark the incremental revenues but a portion of the ENTIRE EXCISE TAX COLLECTIONS from alcohol and tobacco.

O/S Recto

This measure:

+ P15 B incremental revenues on 2013

= P65 B
O/S Recto

O/S Recto

O/S Recto

RA 7171 1B to provinces producing burley and native tobacco

EARMARKING

40% of total sin tax proceeds = 50% P26 B to PhilHealth P33 public health sector 10% of total sin tax proceeds = P6.5 B to DOH
3.25 B to 16 regional hospitals = 200 M 3.25 B to 618 district hospitals operated by LGUs = 5.25 M

P65 B

100 M for public information and education campaign program 100 M for displaced workers
O/S Recto

Extinction of vices cannot be affected through taxation.

O/S Recto

This bill is not the magic pill that will restore the fiscal health of the government either.

O/S Recto

Other industries must do their share,

not through a round of new taxes, but by SHUTTING DOWN THE LOOPHOLES through which their companies breathe.
O/S Recto

Two of the HARDEST THINGS

a Senate can do is to VOTE FOR WAR and VOTE FOR NEW TAXES.

O/S Recto

Lalo na sa isang batas na papataw ng buwis hindi sa mga dambuhalang kumpanya pero sa ordinaryong mamamayan.
O/S Recto

O/S Recto