An ad valorem tax is a tax based on the value of the incurred, like the value added tax, sales tax, property tax or inheritance tax. The value of the goods, services or properties is the basis for the tax collected.
Specific tax on the other hand, is a tax based on the quantity produced. It is not a function of the value of the product being taxed. Cigarettes are a product being taxed in such category.
The use of specific tax could have been a good idea since it is evident that even though the Philippines is a small country, it is the 12th largest in the cigarette industry with an annual volume of around 85 billion sticks of cigarettes. At P1.00 per stick, it could easily translate to P85 billion tax revenue and yet we had only collected a mere P27 billion.
This is so because we presently have a faulty tax system that is prone to manipulation and is also impossible to operate to its full potential. 1.
The special exemption on excise reclassification of brands that were in the market before 1997. Take the case of Malboro. Even if it is one of the top selling brands carrying one of the highest prices, it falls under a lower category for taxation. 2.
To make matters worse, the current tax system has a 4-tier system that categorizes cigarettes as low, mid, high and premium. Now, how the government can monitor if the annual sale of 85 billion cigarettes is properly categorized is something to think about. 3.
Since the tax is specific, tax increase is dependent on the tax hike implemented. In the past 10 years, the tax was only increased 3 times; by 12% in 2000, 6% in 2007 and by another 6% in 2009. It was low arbitrarily that is why the Philippines has the cheapest tax rate in the region. This tax doesn’t even track the inflation rate of the country. That is why the tax is so way off the Consumer Price Index (CPI)
Since we are only collecting a third of what we should be collecting, I believe that it is best to move the taxation of specific tax to ad...
Please join StudyMode to read the full document