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Excise Tax Threatens Cigarette Industry

MANILA, Philippines--The local cigarette industry might go up in smoke if the government does not act fast. The government may be deluding itself by favoring an excise tax law which creates an uneven playing field in the local cigarette industry.

Revenue Regulation 22-2003 imposes an increase in excise tax only on certain cigarette brands based on their current retail price while maintaining the excise taxes of others even though they have increased retail prices since 1997.

Case in point is how the brand of a local cigarette manufacturer, which the Bureau of Internal Revenue (BIR) classified as an existing one, is being taxed at P1.12 per pack despite the net retail price already exceeding P5, the cut-off for the lower-taxed category. If its net retail price P6.82 is considered, tax paid should be P8.96 per pack.

Meantime, La Suerte’s Astro and Memphis are being taxed higher at P5.60 per pack based on their newly surveyed prices (both of which exceed P5), which are used as a basis for establishing their new excise tax level. Both have been classified by BIR as new brands. Other brands with price levels comparable with Memphis and Astro enjoy no change in excise tax because their’s is pegged at the 1997 rate.

In addition, Marlboro and Philip Morris brands, which are currently retailing higher than Lucky Strike, continue to pay an excise tax of P8.96 while Lucky Strike is being imposed a higher excise tax of P13.44 by virtue of the latter having been classified as a “new brand.” In effect, there is no level playing field in the taxation of cigarette brands because RR 22-2003 favors so-called “existing brands” over the “new brands.”

This “unfair” system has cigarette manufacturers who pay higher excise taxes crying for the abolishment of RR 22-2003 for many reasons, one being it goes against agreements with the World Trade Organization (WTO) and the regulations of the Asean Free Trade Area (AFTA). Their contention is if RR 22-2003 causes the alienation of foreign cigarette firms, what’s to keep the same from happening to foreign businesses in other industries? If that happens, it isn’t farfetched that products the country exports and imports and the revenue and savings from these will be sorely affected.

As a country that promotes free and fair trade, the Philippine Government should not support such a trade restrictive measure that is clearly in violation of the WTO and AFTA principles. The system clearly discriminates against imported brands like Lucky Strike that have entered the local market after 1997.

Another point that has raised the ire of affected manufacturers is how the BIR considers the net retail price of “new brands” in determining the tax rate but not for other brands which are viewed by the law and RR 22-2003 as “existing brands.” The “uniformity in taxation” in principle states that current prices of all brands must be recognized, or not at all. The BIR should focus on all brands, not just some. In this setting, all cigarette brands of all tobacco firms sold locally are to be subject to the same conditions. Simply put, they want equal treatment under the law.

The third inconsistency is with the law dictating that “variants of existing brands of cigarettes which are introduced after the commencement of RA 8240 shall be taxed under the highest classification of any variant of that brand,” new variants with higher prices should be taxed as such. This shows the flawed nature of the BIR’s position on the latest variants of an old brand not being subject to the current price adjustment.

The inconsistencies some cigarette manufacturers have pointed out in RR 22-2003 are the reasons why many consumers have been surprised to see the brand they patronize is no longer available.

The smoke signals are loud and clear, the government must suspend RR 22-2003 and instead introduce a new tax system that will pave the way for a level playing field. Ultimately, the idea is to benefit both the country, through higher excise tax collection, and all players in the industry through fair competition.
Karla Gae Pascua
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