Posts Tagged ‘sin taxes’


Taxation is not only taxing; it is also vexing.

A few decades back, the doyen of public finance issued the following observation cum warning:

Fiscal policy, on both its tax and expenditure sides, should be among the most controversial of policy issues.  The fis­cal process…occupies the middle ground between anarchy and absolute rule.  It provides the forum on which interest groups and ideologies may clash…and on which compromise and cooperation may be sought.  The budget process can hardly be expected to function without error if only because it is cre­ated by the same conflicting interests which it must reconcile (Musgrave 1981).

For the complete post, please click on the link below:

Taxing your sins


The term ‘Solid North’ first came up during the quest of one Ferdinand Edralin Marcos for the highest political post of the land–the Presidency.  It was understood to mean that Ilocanos and Ilocano-speaking persons in Northern Luzon will vote as a bloc for Marcos.  Marcos’ election to the Senate and his election and re-election as president in 1965 and 1969, respectively, were cited as proof of the region’s solidity. He lifted martial law in 1981 and new presidential elections were held which he won handily.  Another score for the Solid North.

Map of Northern Luzon

After the ouster and demise of Marcos, talk about ethnic-based voting blocs diminished and the political strength of religious groups was increasingly recognized.  To this date, vote-seeking politicians try to insinuate themselves into the assemblies of these groups.

Eventually, the Solid North got reincarnated as a potent legislative bloc composed mostly of representatives of tobacco-growing districts in Northern Luzon.  This bloc was named the Northern Luzon Alliance (NLA).

Lucio Tan

The Northern Luzon Alliance is specially active every time government tries to reform taxes on sin products like cigarettes and cigars.  Lucio Tan’s cigarette-manufacturing companies are heavy buyers of raw tobacco from the NLA districts.  Tan’s competitors do not manufacture low- and middle-quality cigarettes and do not use local leaf tobacco.  It is thus not surprising that NLA representatives supported Tan’s tax preferences.  President Ramos tried reforming sin taxes twice–in 1993 and in 1996.  In both instances, strong opposition from the Northern Luzon Alliance adulterated the reform effort.  In 1996, Ramos cajoled his fellow Ilocano congressmen, scolding them at times for parochialism, to stop stonewalling against the sin tax reform measure so he could present it as a trophy to the APEC summit in Subic Bay, Zambales.  To get their support, he sponsored a measure providing for an annual P400 million tobacco fund for tobacco-growing provinces to be distributed in accordance to production volumes.  Needless to say, both measures got passed but Ramos did not get the sin tax measure he really wanted.

Since last year, the legislative mill is processing yet another version of a sin tax measure.  However, the context has changed.  Tan’s cigarette company has merged with its competitor forming the Philip Morris Fortune Tobacco Corporation (PMFTC) in 2010 to capture about 90% of the market.  A newer entrant, British American Tobacco (BAT) which produces such brands as Lucky Strike, Kent and Dunhill, will have to work hard to make a dent on the market.  For this reason, it is interested in the unitary tax on cigarettes as currently proposed by administration legislators.  Of course, Tan wants to preserve a multi-tiered tax structure that makes his brands more competitive.  Under the existing law, cigarette brands introduced after 1996 have to pay a higher excise tax.  Tan’s products were introduced before 1996.

Philip Morris cigarettes

Also, there seems to be cracks within the Northern Luzon Alliance.  In a press conference sponsored by the Department of Health, Ilocos Sur Governor Luis “Chavit” Singson said he was supporting government’s plan to increase cigarette taxes after decades of blocking higher taxes.  Chavit explained that the monopoly formed by the merger of Fortune Tobacco and Philip Morris depressed prices of tobacco leaf to the detriment of Ilocano tobacco farmers.  And he predicted prices will continue going down since there was only one buyer.  To the extent that this was true, Singson argued that only cigarette manufacturers prospered at the expense of tobacco farmers.

Gov. Luis "Chavit" Singson

Singson’s stand is supported by the League of Provinces of the Philippines (LPP) president Oriental Mindoro Governor Alfonso Umali.  La Union (also part of Northern Luzon) Governor Manuel Ortega claimed Umali did not consult LPP members in making his statement in support of Singson.

Rep. Eric Singson

Also, there is division in the House Singson.  After Singson pere’s press conference, his son Ryan, a member of the House of Representatives, refuted his father and claimed that Ilocos Sur became a first class province primarily due to the additional income earned by farmers from the tobacco sold to cigarette manufacturers.  Another relation, Rep. Eric Singson Jr., also contradicted Chavit’s contentions.

Rep. Ryan Singson


Will Chavit’s arguments affect the ultimate fate of the current sin tax measure?  He reportedly  intends to meet with NLA colleagues about the dangers of allowing PMFTC to continue its monopoly and dictate the prices of raw tobacco.  Perhaps, he can score if he gets firm commitments from BAT that it will also buy locally-grown tobacco.

In addition, he needs to convince his relatives.