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TOBACCO TAX STRUCTURE IN THE
PHILIPPINES
Gil S. Beltran Undersecretary
Department of Finance
June 22, 2010
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SUMMARY OF PRESENTATION
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Overview
Weaknesses of Current System
Fiscal Situation
Conclusion
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Taxes on Tobacco
2009 (PB) Excise P24.2 VAT (est) Total
1.1 P25.3
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Excise Tax Structure: Tobacco
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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
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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
WEAKNESSES OF THE CURRENT MULTI-TIERED
SYSTEM
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• 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.
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• 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
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• 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 Retail Price
2004 Tax Rate
Effective Burden
(Tax/Price)
2008 Retail Price
2008 Tax Rate
Effective Burden (Tax/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
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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
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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%
Conclusions: Tobacco Tax Needs to be Reformed to:
Raise Additional Revenues Simplify Structure and Enhance Equity Enhance Sumptuary Role of Tax
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Thank you!