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General, Tax Updates, Taxation

Philippines ‘sin tax’ introduced (revised tax rates on cigarettes and alcohols)

On December 26, 2012, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) 17-2012 Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco Products Pursuant to the Provisions of Republic Act No. 10351 and to Clarify Certain Provisions of Existing Revenue Regulations.  As the title suggests, this RR contains revised tax rates on alcohol and tobacco products.  And what maybe the changes in the rates? Well, of course, tax rates increased!

Sin TaxRecall that it was published in the official website of the President of the Philippines on December 20, 212 that President Benigno S. Aquino III signed into law Republic Act (R.A.) 10351 (An Act Restructuring the Excise Tax on Alcohol and Tobacco) otherwise known as the Sin Tax Reform 2012 in ceremonies in Malacañang Palace on Thursday.

The Sin Tax Reform 2012 is considered as the only tax reform on alcohol and tabacco products that favor both the government and the Filipino people

The enactment of the law is a victory in the government’s campaign to protect the people, especially the young and the poor, from the ill effects of smoking and excessive drinking.  The reform aims to reduce tobacco and alcohol consumption among the Filipinos that leads to better health outcomes.

The law aims to generate government’s revenues to fund the Universal Health Care.  The law also provides additional funding for tobacco farmers’ livelihood program.

To read the full publication in the official website of the President of the Philippines, click Here!

Sin TaxAs a consequence of the enactment of the R.A. 10351, RR 17-2012 (Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco Products Pursuant to the Provisions of Republic Act No. 10351 and to Clarify Certain Provisions of Existing Revenue Regulations) is issued by the BIR.  Revised tax rates and bases for specific excise tax is contained under Section 3 of the said RR.

To read and download Revenue Regulations No. 17, 2012, Click Here!

RR 17-2012 is effective upon publication in leading newspaper of general circulation.

Below are the news publications regarding the effectivity of the Sin Tax Reform 2012.

Source: Philippine Daily Inquirer (01/01/2013)

MANILA, Philippines—A “sin tax” on cigarettes and alcohol dampened the New Year party spirit when it was introduced in the Philippines Tuesday, as part of a government bid to boost finances.

Many stores started selling tobacco and drink at inflated prices before midnight, ahead of the official implementation of the tax hikes on January 1, hitting partygoers in the pocket.

Tax on cigarettes will gradually be raised to P30 ($0.72) per pack by 2017, roughly doubling the current price to around 52 pesos.

Duty on alcohol will also increase gradually until 2017, increasing the price of a bottle of beer by 23.50 pesos, with varying levels for other drinks including wine and spirits. It will be further increased by four percent each year thereafter.

“The new prices compared to countries like Singapore, for example, are still low, but for the ordinary Filipinos they are expensive,” said Laudemer Angeles, a 33-year-old shop owner in the town of Bacoor, south of Manila.

“Many of my customers were complaining about the higher prices and were not too happy when they bought their booze and smokes for their parties last night.”

Anti-smoking campaigner Emer Rojas said he hoped the new taxes would lead to a gradual decline in the number of people suffering from tobacco-related illness.

“I think the sin taxes should even be raised higher,” he told AFP. “But we commend President Aquino for showing his resolve in signing the law.”

The government has said that the country of 100 million has the highest incidence of smoking in the region, with tobacco-related diseases costing the country P177 billion ($4.3 billion) last year.

The new taxes aim to raise P33 billion ($800 million) this year alone, gradually increasing over the coming years.

A large percentage of the money will go towards the government’s healthcare program.

The government first asked Congress to raise taxes on “sin” products as early as 1997, but a strong lobby by tobacco manufacturers stifled change.

The lobby included members of Congress representing tobacco-growing regions as well as powerful cigarette companies that enjoyed one of the lowest tobacco taxes in Southeast Asia.

Source: The Philippine Star (01/01/2012)

MANILA, Philippines – The New Year ushers in higher taxes on cigarettes, beer, liquor, wine, and other tobacco and alcohol products.

When he signed Republic Act No. 10351 on Dec. 20, President Aquino said, “Today, we are again making history: for the past 15 years, we have been trying to reform the tax structure of imposing excise tax on tobacco and alcohol products. After 15 long years, we have finally succeeded.”

“As the people’s servant, I shall personally ensure that this government shall implement the Sin Tax Reform Act of 2012 in a transparent and accountable manner starting Jan. 1, 2013,” he said.

Starting today, the tax on cigarettes packed by hand, which comprise the bulk of tobacco products sold in the country, is P12 per pack for those with a net retail price (excluding the excise tax and the 12-percent value added tax) of P11.50 and below. For those with a higher retail price, the tax is P25.

The rates will go up to P17 and P27 in 2014, P21 and P28 in 2015, and P25 and P29 in 2016. There will be a single rate of P30 per pack starting 2017, rising by four percent every year.

This means that the four categories of cigarettes based on their retail prices and tax rates under the old law have been reduced to just two, with the new law providing for a uniform tax treatment beginning in 2017.

The old levies ranged from P2 per pack for low-priced cigarettes to P28 for those classified as premium.

For fermented liquor (beer), the tax is P15 per liter if the net retail price is P50.60 and below per liter, and P20 per liter for those with a higher price.

The rates will rise to P17 and P21 in 2014, P19 and P22 in 2015, and P21 and P23 in 2016. A uniform tax of P23.50 will be imposed starting in 2017, which will increase by four percent every year.

For distilled spirits, the tax is 15 percent of net retail price plus P20 per proof liter, rising to 20 percent plus P20 in 2015.

In the case of wine, the tax is P200 per bottle of 750 ml (milliliter) if its net retail price is P500 or less, and P500 per if the wine costs more.

According to Sen. Franklin Drilon, principal author of the Senate version of the sin tax bill, additional sin tax collections for 2013 would amount to P33.96 billion, P42.82 billion in 2014, P50.63 billion in 2015, P56.86 billion in 2016, and P64.18 billion in 2017, for a total of P248.49 billion in five years.

Some 70 percent of such collections would come from tobacco products.

The law allocates 15 percent of incremental revenues for programs that would benefit tobacco farmers.

Of the remaining 85 percent, 80 percent “shall be allocated for universal health care under the national health insurance program, the attainment of the Millennium Development Goals (MDGs) and health awareness programs; and 20 percent shall be allocated nationwide, based on political and district subdivisions, for medical assistance and health enhancement facilities, the annual requirements of which shall be determined by the Department of Health.”

The 20 percent for medical assistance and hospitals to be distributed among “political and district subdivisions” is additional pork barrel funds for members of Congress.

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About leecpa

Orlando Calundan is a Certified Public Accountant. He has exposures in audit of financial statements of entities in various industries such as real estate, food (quick service restaurants), manufacturing, service organizations and BPOs, automotive, holding/investment companies and more. He also has exposure on internal audit engagements. http://ocalundan.info

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