World Bank Fails in Greece, Attacks Cigarettes Alcohol

After proving to be a monsterous failure in Greece, World Bank Economist Karl Kendrick T. Chua said at a forum Thursday that increasing taxes on cigarettes and alcohol will give an additional 0.6 to 0.9 % of GDP to economic growth in the Philippines. This will also help in plugging leaks in taxation.
The Philippine government needs to increase “Sin Taxes” if it wants to achieve its growth target of 7 to 8 % within the next 6 yrs.
“(A) medium term growth of above 5 % can be sustained by addressing structural bottlenecks to raise overall competitiveness, ” Chua said.
“Excise taxes for tobacco and alcohol which can generate anywhere from 0.6 to 0.9 % of GDP in revenues and passage of the fiscal incentives rationalization bill can gradually plug the leakage in redundant incentives,” he added.
The Philippines has one of the cheapest cigarettes and alcohol in Asia owing to low taxes imposed on these products.
Earlier estimates made by the World Bank revealed that Philippine sin taxes are low compared to Thailand, Laos, India and Pakistan.
Excise tax as a percentage of retail sales price (RSP) of tobacco was at 32.9% for the cheapest brands and 37.5% for premium brands. For liquor, the Philippines imposes 26.1% for beer and 35.8% for distilled spirits.
This is lower than the ad valorem rates in Thailand 55% for beer and 50 % for distilled spirits.
Health advocates claim such policy has increase incidence of lung and heart diseases and puts a burden on the country’s public health.
The finance department said that by raising sin taxes, the government may be able to raise much needed revenues to narrow the budget gap and support development projects.
President Benigno Aquino III supports a bill sponsored by Cavite Representative Joseph Emilio Abaya. Abaya’s bill proposes a unitary tax system, higher excise tax on cigarettes and adjustment of cigarette taxes based on future increases in inflation. The bill is now being discussed in the Ways and Means Committee in the House of Representatives.
The finance department estimates that once the revised tax system is in place, the government stands to collect nearly 60-B Pesos (US$1.40-B) worth of revenue in its first year of implementation alone. That’s almost 3 times more than the 25.8-B Pesos (US$603.23-M) collected in Y 2010
Tobacco manufacturers opposed the proposed bill and warned that this will penalize the industry and the 2.7-M tobacco farmers.
In a separate briefing Chris Nelson, president of Philip Morris Fortune Tobacco Corp., the biggest tobacco manufacturer in the country, said increased taxes will erode the local cigarette market.
Nelson said he and his partners are “extremely worried over the impact of higher excise tax for cigarettes.”
Meanwhile, apart from increasing sin taxes, Chua said the government also needs to improve its tax administration.
He said up to 2.5% of GDP in tax revenues were eroded because of the current form of the excise taxes while at least 1% of GDP in revenues were eroded because of redundant fiscal incentives.
Chua added that increased public spending in infrastructure and human capital development, good governance, reduction in the cost of doing business will also help promote growth.