By Lawrence Agcaoili

THE Finance Department is pushing the passage of a law increasing the taxes on alcohol and cigarettes to help erase the budget deficit, its top official said yesterday.

A “sin tax” on alcohol and cigarettes could mean up to P120 billion in extra collections in the next three years, Finance Secretary Margarito Teves told business leaders.

“We support moves to increase the tax on alcohol and tobacco products, which are commonly referred to as sin products,” Teves said.

“This proposal is probably the most acceptable to the Filipino public of all the proposed revenue-enhancement measures, because we are increasing the tax on vices.”

Teves made the statement even as Customs reported collecting P258.97 billion last year, an amount 1.8-percent higher than its P254.47-billion target.

The amount was also 12.7-percent higher than the total collections in 2007, Customs Commissioner Napoleon Morales said.

He attributed the higher collections to the high oil prices in the middle of 2008, and to increased rice imports as a result of the shortage of the grain.

Teves said his department’s proposal would simplify the excise tax structure by imposing a two-tier system on the first year and a single rate on the second year in the case of cigarettes.

That system could raise P20 billion to P30 billion on the first year, P30 billion to P40 billion on the second year, and P40 billion to P50 billion on the third year. It could raise P60 billion to P70 billion annually starting on the fourth year.

Teves said a survey commissioned by the Health Department and conducted by the Social Weather Stations in 2007 showed that 82 percent of the respondents favored increasing the tax on cigarettes.

A study conducted by the International Monetary Fund showed that the Philippines had the lowest tobacco excise tax in the Asia-Pacific region, he said.

“We believe that there is scope for an increase in the excise tax on alcohol and tobacco,” he said.

“For tobacco products, an IMF study showed that the tobacco excise burden in the Philippines is among the lowest in the region.”

The Philippines maintains a four-tier system resulting in a 640-percent tax differential between low-priced and premium-priced brands. It has had a mixed specific and ad-valorem system in place since 1997, which classifies cigarette brands under four categories: low, medium, high and premium based on their net retail prices.

But in 2004, President Arroyo signed a law prescribing tax increases every two years—or until 2011—on cigarettes and alcohol products.

Teves said more laws were needed to boost tax collections, and that “Half the projected additional revenues would come from the proposed increase in sin taxes.

“Again, we are advocating this measure because this is probably the most acceptable tax measure to our people and has the biggest revenue impact,” he said.

The Philippines is staring at a budget deficit of P102 billion or 1.2 percent of the gross domestic product this year from about P75 billion or 1.0 percent of GDP last year. With Joel E. Zurbano