FAIRNESS, ETCETERA
In my earlier article, I wrote that “I am concerned about fairness” in the imposition of the “unitary” taxes on cigarettes as proposed in House Bill 5727.
Historically, the taxing authorities have recognized that there are four gradations of cigarette qualities, and past tax schemes were designed to adapt the rates to the spending capacity of consumers. The previous system of classifying cigarettes into four, namely, Low, Medium, High, and Premium, did not serve to discourage smoking. Even as the rate of production (being equated to consumption) declined, expectedly the amount of taxes collected continued to increase. The experiences must have encouraged the tax designers to come up with more repressive rates in order to reduce consumption while at the same time expecting to truly raise revenues to record highs. And to further simplify tax assessments and collection the proposed bill of Rep. Abaya actually places all types of cigarettes under one class by the Third Year of its implementation.
Under HB 5727, the repressive rates that are expected to raise P30 billion in revenues become more burdensome to the consumers of the low quality cigarettes as the increase in taxes amounts to more than a thousand percent, while those being imposed on the high quality cigarettes amount to a mere hundred and fifty percent.
This is where my concern is focused – the disparity in treatment.
I happen to be familiar with a principle in taxation that says equity must be observed in imposing taxes. The taxes being imposed must equally burden all those who are being taxed under similar economic situations. In the case of cigarettes, the poor consumer is being oppressively burdened.
Therefore, in principle it should stand to reason that taxes imposed on the different classes of cigarettes must be in proportion to their qualities. I am sure that this imposition is observed in the process of manufacture, particularly in the matter of computing the Value Added Taxes on the different components and stages of producing the cigarettes. (I have assumed that VAT and profits are not part of the net retail price.)
The reasoning of HB 5727 is that all the types of cigarettes are being taxed equally by the Third Year at P30 per pack. There is apparent equality in the amount proposed. On the other hand, as far as I am concerned, taxes must be based on the value or quality of a good. If an item being taxed is cheap, the tax must be low. If the item taxed is luxurious, the tax must be high. A wedding ring with a quartz stone is taxed much lower than a diamond wedding ring. A jeep is taxed lower than a BMW or a Porsche. The principle is as simple as that.
At this point I shall veer off momentarily from the matter of appropriate tax valuations and take on a stated objective in the Manifesto – that is, to discourage smoking.
I am of the opinion that as a sin product, we ought not to consider cigarettes, or tobacco for that matter, as a “good” that deserves to be taxed according to their qualities and values. The tax bill must be honest enough to assert that the P30 being imposed on all types of cigarettes is not a tax but a penalty.
All smokers, regardless of the quality of their cigarettes, must be penalized for smoking because not only do they harm their health (which they do not think should matter at all to others) but they pollute the environment and hasten climate change. In so doing, we also send the message that any investment engaging in the manufacture and importation of cigarettes is not welcome.
Perhaps, we should label the imposition in HB 5727 as an environment and health tax. Thus, we can truly equalize the amount imposed on all to, say, P40 to make it worth P2 per stick. Or even more. Everybody who smokes, whether President or street sweeper, must pay the penalty. Since we cannot have the police look for, arrest and charge smokers for polluting the environment and endangering the health of the community, the penalty tax is already embedded in the price paid for the cigarettes they consume.
I admit that the penalty tax rate I indicated, that is, P40 per pack applied equally to all types of cigarettes will practically eradicate the industry and erase as well prospects of collecting revenues. There is still the matter of raising funds for purposes of adjusting certain elements of the industry during the transition to its “total elimination”. I still appreciate the idea of killing the industry softly and profit from its slow demise. Keeping it alive may yet impede the growth of smuggling and clandestine manufacture of the sin product which our authorities have extreme difficulty in detecting and curbing.
Thus, I could accept the proposed tax bill but with a recommendation to lower the tax rate of the Low priced brands to P8 instead of the P14 for the First Year. This way, the brands will continue to be produced and survive until the Third Year. Nonetheless, even with the adjustment I made in my computed simulation I still maintain that revenue collections will not reach the P30 billion estimated by the proponents of the bill.
As well, the decrease in production and legal consumption will still encourage clandestine operations of supplying the commodity to those who cannot drop the habit of smoking.
.
Historically, the taxing authorities have recognized that there are four gradations of cigarette qualities, and past tax schemes were designed to adapt the rates to the spending capacity of consumers. The previous system of classifying cigarettes into four, namely, Low, Medium, High, and Premium, did not serve to discourage smoking. Even as the rate of production (being equated to consumption) declined, expectedly the amount of taxes collected continued to increase. The experiences must have encouraged the tax designers to come up with more repressive rates in order to reduce consumption while at the same time expecting to truly raise revenues to record highs. And to further simplify tax assessments and collection the proposed bill of Rep. Abaya actually places all types of cigarettes under one class by the Third Year of its implementation.
Under HB 5727, the repressive rates that are expected to raise P30 billion in revenues become more burdensome to the consumers of the low quality cigarettes as the increase in taxes amounts to more than a thousand percent, while those being imposed on the high quality cigarettes amount to a mere hundred and fifty percent.
This is where my concern is focused – the disparity in treatment.
I happen to be familiar with a principle in taxation that says equity must be observed in imposing taxes. The taxes being imposed must equally burden all those who are being taxed under similar economic situations. In the case of cigarettes, the poor consumer is being oppressively burdened.
Therefore, in principle it should stand to reason that taxes imposed on the different classes of cigarettes must be in proportion to their qualities. I am sure that this imposition is observed in the process of manufacture, particularly in the matter of computing the Value Added Taxes on the different components and stages of producing the cigarettes. (I have assumed that VAT and profits are not part of the net retail price.)
The reasoning of HB 5727 is that all the types of cigarettes are being taxed equally by the Third Year at P30 per pack. There is apparent equality in the amount proposed. On the other hand, as far as I am concerned, taxes must be based on the value or quality of a good. If an item being taxed is cheap, the tax must be low. If the item taxed is luxurious, the tax must be high. A wedding ring with a quartz stone is taxed much lower than a diamond wedding ring. A jeep is taxed lower than a BMW or a Porsche. The principle is as simple as that.
At this point I shall veer off momentarily from the matter of appropriate tax valuations and take on a stated objective in the Manifesto – that is, to discourage smoking.
I am of the opinion that as a sin product, we ought not to consider cigarettes, or tobacco for that matter, as a “good” that deserves to be taxed according to their qualities and values. The tax bill must be honest enough to assert that the P30 being imposed on all types of cigarettes is not a tax but a penalty.
All smokers, regardless of the quality of their cigarettes, must be penalized for smoking because not only do they harm their health (which they do not think should matter at all to others) but they pollute the environment and hasten climate change. In so doing, we also send the message that any investment engaging in the manufacture and importation of cigarettes is not welcome.
Perhaps, we should label the imposition in HB 5727 as an environment and health tax. Thus, we can truly equalize the amount imposed on all to, say, P40 to make it worth P2 per stick. Or even more. Everybody who smokes, whether President or street sweeper, must pay the penalty. Since we cannot have the police look for, arrest and charge smokers for polluting the environment and endangering the health of the community, the penalty tax is already embedded in the price paid for the cigarettes they consume.
I admit that the penalty tax rate I indicated, that is, P40 per pack applied equally to all types of cigarettes will practically eradicate the industry and erase as well prospects of collecting revenues. There is still the matter of raising funds for purposes of adjusting certain elements of the industry during the transition to its “total elimination”. I still appreciate the idea of killing the industry softly and profit from its slow demise. Keeping it alive may yet impede the growth of smuggling and clandestine manufacture of the sin product which our authorities have extreme difficulty in detecting and curbing.
Thus, I could accept the proposed tax bill but with a recommendation to lower the tax rate of the Low priced brands to P8 instead of the P14 for the First Year. This way, the brands will continue to be produced and survive until the Third Year. Nonetheless, even with the adjustment I made in my computed simulation I still maintain that revenue collections will not reach the P30 billion estimated by the proponents of the bill.
.
posted by myvja at
8:42 PM
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