FEB.

26, 2012 DATE

NR # 2691C
REF. NO.

Solons question constitutionality of DOF price indexation proposal under sin tax reform bill
Lawmakers have questioned the constitutionality of indexing the prices of alcohol and tobacco products as proposed by the Department of Finance (DOF) in its version of the excise tax reform bill. During the recent two days of hearing conducted by the House Committee on Ways and Means chaired by Rep. Isidro Ungab (3rd District, Davao City) on pending sin tax reform proposals, lawmakers cautioned DOF officials that their indexation proposal could remove from members of Congress the power to legislate revenue measures. I would like to ask about the constitutionality of indexation because here, you are taking away the power of Congress to actually legislate revenues through taxation for the government, said Rep. Eric Singson, Jr. The DOF version embodied in House Bill 5727 authored by Rep. Joseph Emilio Abaya (1st District, Cavite) proposes the price indexation of alcohol and tobacco products based on relevant indexes. It proposes to adopt an automatic annual adjustment of tax rates using relevant National Statistics Office (NSO) established tobacco and alcohol indexes after the third year. DOF officials explained that taxes are eroded by inflation under the current excise tax structure due to lack of price indexation. Rep. Edcel Lagman (1st District, Albay) said Singson raised a valid point in questioning the constitutionality of indexation. We would like to request the DOF to prepare a memorandum on justifying that indexation is constitutional because the thrust here is when there is undue delegation of Congressional power to tax, Lagman said. Lagman also stressed the fact that indexation is already allowed in many provisions of the internal revenue code does not mean it has not been questioned before. Internal Revenue Commissioner Kim Jacinto-Henares said the indexation provision does not mean abdicating the congressional power to pass tax laws. In fact you can only increase the tax provided you follow the rules set by Congress. The power really emanates from Senate and Congress, Jacinto-Henares said. Singson, vice chairman of the sub-committee on national internal revenue, also expressed doubt if the DOF bill could comply with the constitutional mandate of providing for a progressive system of taxation. If we follow the argument for advocating a unitary tax, we might as well provide for a unitary tax for automobiles so that the tax of Porsche will be similar to that of Toyota Vios, anyway both vehicles contribute to the pollution of the environment, he said. Singson also dispelled the DOF officials claim that the current excise tax system provides an

FEB. 26, 2012 DATE

NR # 2691C
REF. NO.

unfair tax treatment. No less than the Supreme Court, unanimously voting 13-0 for the constitutionality of the current excise tax law, has said that the current system is not discriminatory. In fact, the SC said 29 new brands have entered the market since the four-tier specifics system took effect. If indeed, there is unfair tax treatment, our local market would have been first to complain. Rep. Paolo Javier (Lone District, Antique) said before earmarking HB 5727 for health care, its proponents must remember that based on Section 28 of the 1987 Constitution, the rule of taxation shall be uniform and equitable. It simply means that it operates the same force and effect in every place, in every individual. Nevertheless, the Congress shall evolve a progressive system of taxation. For the proposed structural reform on excise tax, it seems that our system of taxation tends to evolve in a regressive system of taxation, Javier said. Javier, Vice Chairman of the Subcommittee on Local Government Taxation and Finance, said HB 5727 will severely hit the low income consumers, tobacco farmers and locally-produced products. You will hit the low income earners. Imagine for cigarettes, thats a 414.70 percent increase from P2.72 to P14. But those in the more than P10 bracket, the increase is 6 percent, from P20.30 to P30. Are we enforcing preferential treatment for one bracket? As I see it, its more of regressive in nature so it violates Section 28 of the Constitution which says Congress shall evolve a progressive system of taxation, said Javier. Henares said HB 5727 will result in equity because at the end of the day, whether a person smokes an expensive or cheap cigarette, the effect on the health of the person is the same. Whether you are rich or poor, smoking would create the same health effect, which is lung disease. Lagman, however, expressed doubt that such motherhood statements would really change the equation with respect to constitutional provisions that the country should develop a progressive system of taxation and should avoid regressive taxation. Because in the first place, the burden of the tax in sin tax would cascade to the consumers. The bulk of the consumers would be the poor, Lagman said. (30) rbb