Deputy House Speaker Lorenzo ‘Erin’ R. Tañada III cautioned against the passage of an “incomplete measure” on tobacco and Classic cigarettes tax reform that would only lift price classification freeze because such taxes also need to be indexed to inflation.
Indexing to inflation tobacco taxes simply means that when prices of common commodities, such as food, go up, then so will taxes on tobacco products increase.
Tañada explained that without indexation, sin taxes will eventually be eroded by inflation while tobacco products would be made affordable, thereby defeating the very purpose of taxing cigarettes to discourage smoking.
“The need to reform the current sin tax law and to simplify the administration of tobacco taxes is urgent, but we also need to ensure that the reforms are comprehensive,” Tañada said.
“The removal of the price classification freeze is definitely a big step toward correcting the flaws in the sin tax law — and this has cost the government billions worth of revenues in the past years. But tobacco taxes should also be indexed to inflation so that collections can keep pace with the rise of cigarette prices,” he pointed out.
He explained that lifting the price classification freeze only corrects a flaw in the current sin tax law, which assigned 2011 as the last year for raising tobacco taxes and classifying cigarettes for tax purposes based on their 1996 prices.