THIS WILL BE my last column for 2014, and so before anything else, please allow me to greet BusinessWorldreaders a very Merry Christmas next week and a happy and prosperous year in 2015. May I also greet the House of Representatives, from where tax laws emanates, a productive and fruitful 2015 in considering new tax policies that will truly benefit people.
Let me take off from Speaker Sonny Belmonte’s seeming concern over the implementation of the latest cigarette taxes approved by the House in 2012 and which took effect in 2013. He noted in a press forum last week the need to review the latest tax changes in light of allegedly fraudulent practices in the tobacco industry to evade taxes and duties.
There is also concern over allegedly illicit trade, or the sale of locally produced cigarettes to markets here and abroad without proper declaration of volumes to the authorities for the payment of correct taxes. News reports also note of the alleged smuggling of imported inputs to local cigarette production, through improper declaration of volumes and or import prices.
Belmonte wants the House oversight committee on cigarette taxes to review current industry practices and to determine whether or not certain cigarette manufacturers are getting away with “murder.” Pardon the play of words, but cigarette smoking, after all, has been determined to cause illnesses that can result in death.
In my opinion, anyone caught cheating on taxes particularly on a large scale should be quartered and hanged, more so companies manufacturing and selling products that are scientifically proven to be detrimental to public health. It is bad enough that they are legally allowed to sell products that are known to be harmful, and they still have the gall to cheat on their taxes?
I support the Belmonte initiative primarily to get a proper determination of the facts in this issue, considering that much information has been made public to date which may or may not be tainted or were derived from polluted sources.
There may also be an effort to misinform policy makers and perhaps the public.
Take the allegation of illicit trade, for instance. The way I understand the present situation, at least one cigarette maker has been accused of selling more than what it produces and declares to the government for tax purposes. With that, its “illicit” trade covers all products sold over and above what has been declared and thus properly taxed.
Note that cigarettes are taxed at the source. And this means that cigarette makers advance or pay ahead the excise tax and value-added tax due on their cigarettes packs as soon as they are produced and “withdrawn” from manufacturing facilities for distribution or sale. Tax collectors are already based in production plants to make the proper assessments and collection.
In this sense, illicit trade can result if there are packs made and withdrawn from plants without the payment of proper taxes, and then sold either locally or abroad as if they were “properly declared” production that are tax-paid.
We have a similar situation in mining, where data indicate metal ores are shipped out and sold abroad, unprocessed and undeclared to authorities for the proper reporting of volumes and they proper payment of taxes.
Belmonte’s concern, it would appear, is that the government is being cheated of taxes because of illicit trade. Although the country’s biggest cigarette maker is also publicly griping over its loss of market share to a smaller competitor. I just hope that the Speaker, and the House, will not lose sight of what is really important. Tax collection is the paramount concern here.
For I cannot see why and how else Belmonte and lawmakers can be too concerned with industry competition and operations since Congress’s primary duty is legislation and not necessarily implementation. It can review implementation of laws mainly to determine the need for remedial legislation.
What also appears to dispel the concern over alleged illicit trade is the fact that tax collection from cigarette makers has actually gone up -- basically, because of higher tax rates beginning 2013 -- even if production volumes and sales have gone down over the same period. As mentioned, the paramount concern here is tax collection, and not so much industry operations.
After all, the twin intent of the latest cigarette tax law is to raise tax collection and calibrate cigarette sales given that smoking is a health hazard. Simply put, higher tax values at lower sales volumes. It shouldn’t matter so much whether one company is losing market share to others, or if one company is making more money than others.
What data show us is that the Bureau of Internal Revenue (BIR) collected over P100 billion in excise taxes from sin products in 2013, with the incremental revenue under the sin tax reform amounting to more than half of that, or Php51.1 billion. The 2013 collection was also 81.2% higher than 2012’s Php55.7 billion. And for January to September this year, collection was P78.3 billion, up 27.7% year on year.
What is more telling is that one independent international study claims the possibility of illicit trade covering about 25 billion cigarette sticks in 2012 and 2013, or over 10% of an estimated total consumption of about 214 billion sticks in the two-year period. Yes, the country sells over a 100 billion cigarette sticks annually.
On the other hand, BIR data over the same period indicate a consumption volume -- and thus tax-paid, since taxes are collected even prior to withdrawal and sale -- of over 237 billion sticks already.
In this line, how can that claim of illicit trade be if total cigarettes consumption in sticks reported by this supposedly independent study both for the years 2012 and 2013 -- inclusive of allegedly illicit consumption -- is materially lower than the consumption (based on actual removals) accounted or reported by government authorities?
It is for this reason that Belmonte is on the right track. A review is still urgently necessary as illicit trade and tax evasion are still distinct possibilities, and there should be greater clarity as to which data is believable. But as mentioned, Congress should not lose sight of the latest cigarette tax law’s objectives: above all else, collect more taxes and at the same time calibrate sales to better protect and promote public health.
Marvin Tort is a former Managing Editor of BusinessWorld, and former chariman of the Philippine Press Council.
matort@yahoo.com
source: Businessworld
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