By Amado P. Macasaet
The Department of Health and the Bureau of Internal Revenue are supporting a House bill that proposes to set a minimum price for all brands of cigarettes. The intention on the part of the DOH is to discourage or at least minimize the smoking habit.
Presumably, the BIR wants to collect more excise taxes resulting from the proposal.
The DOH and the BIR are both wrong in supporting the bill.
The main issue is illicit cigarettes that deny the government billions of pesos in excise tax. Would a minimum price deter if not completely stop underdeclaration of volume of cigarettes to the BIR for tax purposes? It will not.
The question as far as more excise taxes on cigarettes is concerned is best answered by enforcement of the law. The task, as repeatedly asserted on this space, is simple. The BIR should see for itself the utilized capacity of the machines of a cigarette manufacturer. If the capacity is fully utilized, the corresponding volume of production should be declared to the BIR.
This should be the easiest, simplest way to stop the sale of untaxed and therefore illicit cigarettes. The BIR does not want to do it. There are only four cigarette makers in this country. One is suspected of under declaring volume. The BIR does not appear to have a mind of visiting that one.
How will the government ever know if the law on minimum price is enforced by 700,000 retail outlets all over the country? The simple fact is a minimum price cannot be enforced. The manufacturer determines the price of a product on the basis of costs.
Definitely, the factory of say, Mighty Corp. in Bulacan, is far from the Visayas and Mindanao. The expense in bringing the cigarettes to these places has to be recovered from the price. Or the producer reduces his profits or may even incur a loss.
The main point to consider is that the proposal does not address the bigger question of illicit cigarettes. The question of price does not matter at all to a producer who does not pay a tax but sells the product in bigger volumes.
The simple sense is the present situation of compliant producers paying the correct tax and the tax evaders selling illicit cigarettes will not change regardless of whatever price is dictated by law.
In the first place, the price of a product should never be dictated by law. It is determined by the producer using assessment of the capability of the market to buy the product at his price in relation to the products of his competitors.
The other purpose of minimizing smoking through a minimum price set by law is not attainable either. The state-dictated price does not affect the supply of cigarettes. In places where cigarettes are not found, will the smoking habit have to stop? Not likely because the gap will be filled by smuggled cigarettes. Smoking goes on unabated.
Tax collection, on the other hand, will continue to suffer because BIR appears to be deaf and blind to illicit cigarettes.
In fact, it is entirely probable consumption will shift to illicit cigarettes as a result of a minimum price. Why should a smoker buy a stick or pack of cigarettes at a higher price dictated by government when illicit cigarettes abound at a lower price?
The workable solution as far as revenues from cigarettes are concerned is the use of what is claimed to be fool-proof tax stamps.
The tax stamp is fool-proof in the belief of the BIR. It is so only if an unscrupulous producer does not make his own stamp of his own.
The stamps the BIR will sell or issue to the producer should tally with the number of packs. If the correct volume is not declared, there will be fewer stamps than actual volume produced.
The government may install monitoring equipment in every factory that will record the volume of production. That may well be the fool-proof solution. But then the machine does not think. It will not complain if it is tinkered with to achieve the purpose of making it appear the volume of production is low but the capacity of the plant is fully utilized.
I cannot make head or tail on how the minimum price can figure in these possible dark scenarios.
In the end, it is nothing but the sincerity of the enforcers of the excise tax law that will definitely stamp out illicit cigarettes.
The reduction of the smoking habit as seen by the minimum price proposal is irrelevant. The habit is promoted by bigger supply of cigarettes sold at a lower price. One cigarette maker floods the market with untaxed cigarettes
The government allowed British American Tobacco to sell its brands in the Philippines at a lower price. Supply is increased by local illicit cigarettes and by a foreign producer who sells its brand at prices lower than its local competitor and does not use local leaf.
The illicit manufacturer imports tobacco at only 15 percent of the world price presumably to reduce the payment of the valorem tariff of between 5 and 7 percent. Filipino tobacco planters lose a part of their market two ways.
By the illicit manufacturer importing tobacco but does not necessarily re-report it when it becomes cigarettes. BAT manufactures its brands in Malaysia for the Asean and other markets.
How does a minimum price of cigarettes sit in this situation? The Department of Health and the BIR must tell me. I need education on the subject.
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Email:amadomacasaet@yahoo.com
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