‘Sin tax’ gets rebuff in the Philippines but future remains unclear – 23/06/05

PHILIPPINES. A regional trial court in Olongapo City has issued an injunction prohibiting the government from imposing new excise tax rates on “˜sin products’, such as tobacco and liquor, on companies and duty free shops operating inside Subic Bay and other free ports.

The Manila Standard and Business World both reported that Judge Ramon Caguioa barred the government from collecting further excise taxes on tobacco and liquor imported into the Subic Freeport, saying the “˜sin tax’ law passed by Congress late last year (click here for original story) may be unconstitutional.

He sided with a Subic-based trans-shipper who had argued that businesses located in the freeport were tax exempt.

The shipper, Indigo Distribution Corp. had told the court that a law that created the Subic Freeport clearly stated that “no taxes, local and national, shall be imposed within the Subic Special Economic Zone”.

The court ruled that RA 9334 (the sin tax bill) imposes new tax burdens on the importation of alcohol and tobacco products that have previously been exempted from the excise tax under an earlier law RA 7227 – it ruled that the latter outweighed the sin tax bill.

The petitioners said they would lose the confidence of their foreign principals, who might opt to use Hong Kong and Singapore instead of Subic Bay in the Philippines as their transshipment point in the region.

President Gloria Macapagal-Arroyo signed into law the “˜sin tax’ bill on 20 December 2004. It was designed to raise an additional PHP15 billion (US$267 million) in annual excise taxes on alcohol and tobacco products and applied both to Freeport operators and airport duty free stores. As reported, the new legislation put approximately US$4 on a carton of 200 premium cigarettes or US$9 on a bottle of Johnnie Walker Black Label Scotch whisky – disastrous news for Duty Free Philippines and its concessionaires.

The court ruling only became public this week and industry insiders are still digesting the repercussions – if any – for the traditional airport duty free trade. “On the face of it, this looks good for the industry but we’re taking nothing for granted,” one leading supplier told The Moodie Report.
But another well-placed observer cast doubt as to whether the latest ruling would help duty free retailers. He noted: “The judges ruling was that the law itself could not be applied to Subic as the order setting up Subic as a tax free zone overrode any other law. The ruling applies only to Subic (excise duties and VAT are still being collected on DFP goods) and my personal opinion is that the government will challenge this ruling.”

We’ll bring you more trade reaction to the latest news as soon as we have it.

MORE STORIES ON THE ‘SIN TAX’

“˜Sin tax’ restrains Duty Free Philippines’ profits growth, but exciting investments ahead – 23/05/05

“˜Sin tax’ passed into law in the Philippines; potential catastrophe for Duty Free Philippines – 21/12/04

“˜Sin tax’ will mean big price differential between Duty Free Philippines and overseas duty free retailers – 20/12/04

Duty Free Philippines could become “˜uncompetitive’ following passing of “˜sin tax’ on duty free liquor and tobacco says Michael Kho; major regional and category implications – 17/12/04

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