Press Releases

On supposed “overdependence” on excise taxes

June 5th, 2023

Rep. Joey Sarte Salceda
Chair, House Committee on Ways and Means
5 June 2023

Excise taxes comprise between 3.2 to 3.6 percent of GDP, depending on the economic conditions. That’s barely one-fifth of total revenue collection. So, we are definitely nowhere near overdependence on excise taxes. Besides, the alternative is to tax income, which is worse.

We have to keep evolving our excise tax regime because consumption patterns tend to change. You used to not have a market for alcopops, for example. Now, you do. Smoking used to be our main concern. Now there is a perceptible shift to vaping. Even oil consumption patterns will eventually change. So, you need a dynamic excise tax regime.

But, I’d also like to emphasize that we are changing tax policy to improve tax administration. There are three key sources of tax leakage that we are trying to address already.

  1. The hybrid system of invoices and receipts – It leads to discrepancies, room for fraud, bribery, and discretion. The Ease of Paying Taxes Act will shift us to a purely invoice system, so you get charged VAT as soon as the receivable is incurred. That minimizes room for cheating.
  2. Fraudulent receipts for VAT and CIT deductions. We are trying to create a chilling effect by imposing stiff penalties on tax racketeering.
  3. Digital services, especially foreign digital services, are a leak in the tax system. And the price differential resulting from not collecting taxes on foreign digital services is hurting the local creatives sector. So, you want to cover that with VAT the same way you cover most imports.

I could point to a few others leaks. But it’s misguided to say that tax administration is enough. There are fundamental changes in tax administration that require tax policy changes. Tax reform should move at the same pace as fundamental economic changes.

Besides, the excessive impacts of excise taxes tend to correct themselves — either by reducing the consumption of the “bad” you are aiming to discourage anyway, or by producing some kind of alternative that is not covered by the tax. It happened with vape, until we taxed vape.

Here’s what I know: We continue to have some of the cheapest alcohol and tobacco in the region. We impose no excise taxes on pick-up trucks. Our luxury goods taxes cover a very narrow set of “luxuries,” just three items. We are nowhere near overdependent. There is plenty of room to discuss excise taxes. And when I receive an official request from the DOF to discuss certain proposals, and draft administration bill on these proposals, we will take them up.

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