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News & Events » Senate passes sin tax hike bill, 15-2

Article written by Angie M. Rosales (November 21, 2012)

Palace allies force a vote

The Senate passed the controversial sin tax measure on a 15-2 vote after extending the session deep into late last night that saw senators clashing on details of the measure amid President Aquino’s Senate allies effort to ram through its approval.

Senators agreed to correct a distortion in the burden-sharing of the tobacco and alcohol industries for the targeted P40 billion yearly revenue hike to clinch the approval of the bill.

The approval of the Malacañang priority money-making bill, on which hinges P40 billion in additional revenues each year, will thus have a 59 percent to 41 percent revenue hike ratio in favor of tobacco products in the first year of the law’s implementation and 60-40 sharing in subsequent years.

The bill will now go into a bicameral deliberation to have it reconciled with the House version.
The dissenters were Senators Joker Arroyo and Francis Escudero with Escudero stating his consistent opposition to any measure to increase taxes as was the campaign pledge of President Aquino.
Based on the formula provided by the Department of Finance (DoF), a shift was shown from the 60 percent to 40 percent ratio of burden-sharing that senators had agreed upon Monday night starting from the second year of the implementation of the law.

For instance, Senate President Juan Ponce Enrile noted that in 2014, the tobacco industry will be assuming 68 percent and alcohol will get 32 perent contrary to their agreement of maintaining a ratio of 60-40 between the two general types of products.

“Why is this distorted system of sharing? There is a definite bias of this proposal in favor of alcohol against the tobacco farmers of the north, against tobacco. Why? The members who do not believe in this distribution are entitled to know the answer from the secretary of finance, if he did this model,” demanded Enrile in presiding over the proceedings.  

“I see the model presented here on the proposal of the DoF is so distorted. It’s no longer 60-40 in the succeeding years,” he said, emerging from their caucus where senators discussed the computation on how the aggregate P40 billion sin tax collection target will be realized.

Under the said 60 to 40 burden sharing, the tobacco tax take was pegged at P24 billion while taxes on alcoholic drinks was set at P16 billion under the emerging Senate version, providing as well a unitary tax rate by tiers after five years.

Enrile, a known tax law expert, could not help but protest to the distribution of burden sharing, with that of the tobacco industry assuming an increasing amount, beyond 60 percent in the succedding years.

“We agreed that...for easy computation, let us make it 60-40. Then if this not the truth then tell me that I’m  lying. And we agreed. Now we’re increasing the present level of tax on alcohol and tobacco by P40 billion more than what it is under the current law. That is already a very high increase and we must start the progression for increasing the incremental revenue up to the time when we reach the single rate progressively according to that elevated base already. But I see the model presented here on the proposal of the DoF is so distorted. It’s no longer 60-40 in the succeeding years,” Enrile said.

“Traditionally when we crafted this specific tax, it was 50-50 sharing. It was changed gradually over time. Now in 2015, the burden sharing will be 69 percent for tobacco and 31 percent for alcohol. In 2016, it will be 67 percent for tobacco and 33 percent for alcohol. Why the distortion?” he asked.

“Now we can recompute this to see to it that we will comply with our commitment to the President that he will get a starting point of incremental revenue of P40 billion, progressively that will be increased over time and we will reach a point, five years hence, to a single rate. At that point, all these products, all these brands of cigarettes will only have one rate and the sharing between alcohol and tobacco will be maintained at 60-40. That is the understanding, that is the implicit understanding yesterday.

“I want to put this into the record so that we will not be blamed that we are again derailing this sin tax. We are not. We are in fact pushing it according to our agreement,” an irate Enrile said before his peers.
Acting ways and means committee chairman and sponsor of the bill, Sen. Franklin Drilon asked that the DoF be allowed to recompute “because there are certan assumptions that were made and we wish to review the assumptions.”

“We wish to have a little more time and it is on this basis that we are requesting that we suspend consideration on this measure and we take it up again tomorrow after we sponsor the budget. That is all we’re asking. We do not want to debate at this point, what appears to be a resulting disproportionate sharing. We want to review and verify these figures because I must state for the record that we followed the amendment proposed by Senators (Panfilo) Lacson and (Teofisto) Guingona (III) on this point. So we just want an opportunity to recompute and see where we can come up with...where some errors were committed and we can come back here and explain everything. There’s no need to renege from our commitment, we need to be honest,” Drilon said.

“What more is there to recompute? Is it our purpose really to destroy the tobacco industry in this country? Or is there any reason to be biased in favor of alcohol?” asked Enrile.

“That is not our purpose. There is no reason. We were just following certain assumptions,” Drilon retorted.  
Also during the deliberations of the bill, Sen. Joker Arroyo said that the bill, being touted by Drilon as a health measure, is silent on the expenditure program to reduce cigarette and liquor addiction.

“Where is the expenditure program to reduce cigarette and liquor addiction?  None.  What is proposed is a lump sum appropriation of P40 billion ostensibly for health care,” Arroyo said.

“What the Senate is being asked is to authorize a lump sum appropriation of P40 billion. Lump sum appropriation is a curse in budget making,” he added.

This is why the senator is against the sin tax reform bill.  The bill states that the incremental revenue of P40 billion will be used to finance the universal health care program of the government, the annual requirements of which shall be determined by the Department of Health.

During individual amendments, Enrile proposed that 15 percent of raw materials in the production of cigarettes should be sourced from Virginia leaf tobacco-producing provinces.

Drilon accepted the amendment after Enrile warned that his constituents from northern provinces would remember those who would oppose to his amendment.

“I am sure the people of my region will remember those who are opposed to this amendment,” Enrile said, to which Drilon said “we already accepted.”

Lacson also questioned what will happen to the revenues that will be collected from excise after 2016, which will be  the last year that the revenues collected from tobacco and liquor products are to the universal health care program of the government.

Drilon said that after 2016, the revenue would be ceded to the national treasury.

Sen. Ralph Recto, former chairman of ways and means committee which first proposed a P15 billion to P20 billion incremental revenue from excise tax, said a part of the total revenues and not mere “increments” from the sin tax reform package should go directly to intended beneficiaries and programs and should not be a “blank check” for disposal of government agencies.

“The people, at the outset, should know where the money that would be taken from them would be used,” Recto said in proposing amendments to the “earmarking” provision of the sin tax reform package.
“We know the target of P40 billion, but do we know where the sin tax revenues would specifically go?” he added.

Recto proposed that P23 billion from total sin tax revenues be directly released annually to the Philippine Health Insurance Corp. (PhilHealth) to meet and sustain the government’s goal of providing universal health coverage and benefit an additional 10.4 million families.

He also proposed that P10 million be allocated yearly to each of the 618 district hospitals operated by local government units (LGUs) for repair and upgrading of facilities and services.

A separate P100 million will be allocated yearly to each of the 16 regional hospitals and 22 medical centers for the same operational and physical upgrading, according to Recto’s proposed amendments.
The senator also pressed for the annual allocation of P100 million to the Department of Health (DoH) for a nationwide information campaign on the ill-effects of smoking and drinking.

Recto said another P750 million be allocated every year for the unemployment package of despondent workers and farmers who will be displaced by the crumbling tobacco and alcohol industry.

The above Recto amendment allocates a specific maximum amount of P150,000 “unemployment insurance” for each displaced worker that could be availed within one year.

To re-tool displaced workers, Recto proposed that the Tesda be tapped and be given P250 million yearly to conduct job trainings for tobacco and alcohol workers seeking a fresh start, with each worker entitled to at least P50,000 worth  of training.

“Let me clarify that if these amendments are accepted on the floor, this would mean that all the proposed earmarking or allocations will be strictly funded yearly regardless if the P40 billion revenue target is realized,” he stressed.

Recto said the balance of the total revenues from the sin tax would be parked in the national coffers.
All his amendments were accepted by Drilon.

Sen. Ferdinand Marcos Jr., proposed a different tax rates for cigarette and liquor products to meet the P40 billion revenue target, to which Drilon refused to accept and instead proposed a division of the House.
This prompted Senators Loren Legarda and Pia Cayetano to request for a recess so that Drilon and Marcos can do their math and reconcile their differences.