Flawed tobacco tax system

If our government thinks that they have successfully reduced tobacco smoking rates just because they increased tobacco excise taxes, then it is kidding itself.

- MARY ANN LL. REYES

If our government economic and finance managers believe that the collection of tobacco excise taxes has been declining because there are fewer people smoking, then they are deluding themselves.

The sad reality is that while tobacco taxes have increased, collections haven't, and this is because fewer people patronize the higher priced tobacco products that pay the correct taxes while more consumers are buying the lower priced smuggled ones which do not pay taxes and duties.

Since Republic Act 10351 or the Sin Tax Law's enactment in 2012, tobacco taxation in the Philippines has followed a simple path: raise taxes, reduce smoking rates and fund health care. On paper, it's a virtuous cycle but in reality, it's fueling a thriving illicit market.

The law provides that for tobacco products, an excise tax of P1.75 per kilogram shall be collected effective Jan. 1, 2013, and this rate shall be increased by four percent every year effective Jan. 1, 2014.

In the case of cigarettes packed by machines, the law imposed a tax of P25 per pack if the net retail price excluding excise tax and value-added tax is more than P11.50 per pack, effective Jan. 1, 2013, increasing to P30 per pack tax by Jan. 1, 2017 and this rate shall increase by four percent every year thereafter effective Jan. 1, 2018.

Meanwhile, according to the Bureau of Customs (BOC), the excise tax rate on heated tobacco products as of Jan. 1, 2023 is P32.50 per cigarette pack and this rate shall be increased by five percent beginning 2024 onwards.

For cigarettes packed by machine, the excise tax rate is P60 per pack of 20s beginning Jan. 1, 2023 to increase also by five percent every year starting Jan. 1, 2024 and onwards. Cigarettes packed by hand are subject to the same rate.