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Tobacco tax bill tweaks to cover health care law’s funding gap

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By Charmaine A. Tadalan
Reporter

LAST-MINUTE CHANGES to the measure further increasing tobacco product excise tax rates that partly tap collections of sugar-sweetened beverage and alcohol product levies should help fully fund implementation of Republic Act No. 11223, or the Universal Health Care Act, a senior official of the Department of Finance (DoF) said on Wednesday.

Senate Bill No. 2233, approved on Tuesday evening by both chambers of the 17th Congress, is now expected to yield P130 billion in revenues in 2020 which is more than enough to cover an estimated P63-billion funding gap expected in RA 11223’s first year of implementation.

Of the estimated total projected revenues, P74 billion will be from the increase in excise tax rates on cigarettes; while the balance will be a combination of revenues earmarked from the currently imposed tax on alcohol products and sugar-sweetened beverages, as well as the new excise tax on e-cigarettes.

‘ADDITIONAL COMPONENT’
“There’s additional component that were not included in the initial estimates. ‘Yung total, kasi nag-earmark na din sila sa previously enacted taxes (For the total, the senators also earmarked funds from previously enacted taxes),” Finance Assistant Secretary Antonio Joselito G. Lambino II said in a telephone interview.

The Finance department had initially expected the measure, in its previous form, to yield just P15 billion next year.




The measure, which now just awaits President Rodrigo R. Duterte’s signature, will increase the excise tax on tobacco products to P45 per pack in 2020 and by P5 each year until reaches P60 in 2023, then by five percent annually thereafter.

Cigarettes are currently levied P35 rate per pack, after Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act, increased it to P32.50 in January last year from P30 and then to P35 in July 2018. It is scheduled to go up to P37.50 in January next year.

The new measure that was approved last Tuesday also introduced a P10 excise tax per pack of heated tobacco products beginning 2020 and an annual increase of five percent thereafter.

Vapor products will also carry a P10 excise tax for 0-10 milliliters, P20 for 10.01-20ML, P30 for 20.01-30 ML, P40 for 30.01-40 ML, P50 for 40.01-50 ML, and P50 for more than 50 ML with P10 increase for every additional 10 ML. Heated tobacco products and vapor products are currently untaxed.

The measure also amended RA 10963 (2017) and 10351 (2012) which had restructured the excise taxes on alcohol and tobacco products, by earmarking to the health sector 50% of tax collections from sugar-sweetened beverages and from alcohol.

This amendment was introduced during SB 2233 plenary deliberations on Tuesday evening.

“We have the alcohol and the sweetened beverages, earmarked 50%, dati pa napasa ‘yun, ‘di lang naka-earmark (these laws were enacted but funds from collections were not earmarked),” Mr. Lambino explained.

The new measure is now expected to generate about P136 billion in 2021, P142 billion in 2022, P147 billion in 2023 and P151 billion in 2024.

Of this, P77.8 billion will be sourced from tobacco excise tax alone in 2021, growing to P81.2 billion in 2022, P84 billion in 2023 and P85.6 billion in 2024.

The measure bagged final approval after the House of Representatives — in order to do away with the need for a bicameral conference committee to harmonize conflicting provisions and for ratification — adopted the version of the Senate, which had to make last-minute changes in the face of opposition from congressmen representing tobacco-producing areas. The Senate’s initially approved bill provided 50-50 sharing between governments of tobacco-producing provinces on the one hand and cities and municipalities on the other. The Senate changed the ratio to give cities and municipalities 70%.

The measure brings to three the tax reforms approved by the 17th Congress, including RA 10963 and RA 11213 which provides a tax amnesty.

TAX REFORM PRIORITIES FOR 18TH CONGRESS
Asked which of remaining tax reforms the DoF will push in the 18th Congress, which opens on July 22, Mr. Lambino replied that the department will leave it to lawmakers.

“It’s a comprehensive tax reform program, the most difficult one to pass was our original package one,” he said.

“Since package one has already been passed, we’re open to supporting all the other packages, whichever, kung ano ‘yung unang umandar (whichever advances first),” he added.

“In fact, in the 17th Congress, we were initially supporting our legislators in evaluating package two, pero moving forward it was passed in the House kaso sa senado hindi nabigyan ng hearing (but it did not progress in hearings in the Senate),” he recalled, referring to the package that sought to reduce corporate income tax rates, which senators backed, while rationalizing fiscal incentives by removing those deemed redundant, towards which senators were cautious due to opposition from existing economic zone investors who warned of job cuts.

“What was tackled after that was the ‘package 2-plus on the tobacco, so ‘yun ang sinuportahan namin (so that is what we supported).”