The European Chamber of Commerce of the Philippines (ECCP) said the law still does not clarify excise taxes for spirits pursuant to a directive from the World Trade Organization (WTO).
"While the sin tax bill appears to be now WTO compliant as the rates apply equally to local and imported distilled spirits, the fact remains, however, that the distilled spirits industry did not ‘get’ what it wanted: a best practice of unitary tax structure like the case of cigarettes," said ECCP Executive Vice-President Henry J. Schumacher in an e-mail to BusinessWorld.
"The adoption of a Net Retail Price (NRP) system as the basis for calculating the correct excise rate is so convoluted and complex ... and is not in accord with best practice. We are still hopeful that the Implementing Rules and Regulations can provide some clarity and transparent procedures and that the industry and public at large will be consulted," he added.
President Benigno S. C. Aquino III on Dec. 20 signed Republic Act 10351 or the "sin" tax reform measure. The implementing guidelines are expected to be released within the week.
The law sets two tiers both for tobacco products and fermented liquor, with rates gradually increasing to settle at just one by 2017, and a combination of ad valorem and specific tax for distilled spirits.
For fermented liquor, products with a net retail price (NRP) per liter of volume capacity of less than P50.60 will be charged P15 next year, P17 in 2014, P19 in 2015 and P21 in 2016.
For products with NRPs of P50.60 and above, a tax of P20 will be imposed next year, P21 in 2014, P22 in 2015 and P23 in 2016. A unitary tax of P23.50 will be imposed in 2017.
For distilled spirits, a tax of P20 plus 15% of the NRP was set.
"The law is WTO compliant because our taxation will not depend on whether or not the product is imported or locally made, it will be taxed the same way. If you import cheaply you will be taxed lower. Yes, it is complicated but it is unitary which is what the WTO wanted," said Internal Revenue Commissioner Kim Jacinto-Henares in a separate telephone interview.
In 2009, the Philippines was sued by the European Union (EU) before the WTO, and the United States followed a year later. Both claimed that the country’s excise tax regime favors local distilled spirits. The US and EU are the world’s first and second largest exporters, respectively, of distilled spirits.
In August, the WTO ruled that Philippine laws were discriminatory, declaring that distilled spirits are "like products" and therefore "directly competitive."
"In other words, while the country has made an important step forward in the excise tax reform, it is essential that the implementation and administration of the new excise taxes will be effective," said Mr. Schumacher.
Prior to the reform, taxes on tobacco and alcohol products were pegged at 1996 prices. The new law is expected to generate P33.96 billion in fresh revenues next year. The bulk, or P23.4 billion, will come from tobacco products, while the remaining P4.5 billion and P6.06 billion will come from fermented liquor and distilled spirits, respectively. --Emilia Narni J. David
Source: Business World; News; 25 December 2012