PHILIPPINES. President Gloria Macapagal-Arroyo yesterday signed into law the so-called “˜sin tax’ bill, which is designed to raise an additional PHP15 billion (US$267 million) in annual excise taxes on alcohol and tobacco products.
But the repercussions for the country’s leading duty free retailer, Duty Free Philippines, are potentially disastrous.
As reported, the new legislation puts approximately US$4 on a carton of 200 premium cigarettes or US$9 on a bottle of Johnnie Walker Black Label Scotch whisky. If the retailer passes on that tax to the consumer, Duty Free Philippines’ prices will become uncompetitive, General Manager Michael Kho has warned.
Over 70% of Duty Free Philippines’ sales are generated on arrival, mainly to Overseas Filipino workers (OFWs). If the tax is applied, the price of a bottle of Johnnie Walker Black Label would increase from US$25 to US$34. At Dubai International Airport, a popular departure point for returning OFWs, Black Label currently retails for AED97 or US$26.90.
Similarly, a carton of 200 Marlboro Reds currently retails for US$12 at Duty Free Philippines. The tax would push this to around US$16-17, totally uncompetitive with Dubai Duty Free’s US$12.20.
Middle Eastern retailers, which enjoy a high percentage of Filipino traffic, are watching the situation closely. Noted John Sutcliffe, Managing Director of Aer Rianta International-Middle East: “Yes, if this “˜tax’ is introduced it will definitely affect sales adversely [in the Philippines]. Post-arrivals duty free was established to encourage overseas Filipino workers to spend foreign currency inside the Philippines (which badly needs foreign reserves) rather than import from abroad. If they do push ahead with current plans, Middle East operators will most certainly benefit.”
Having passed the “˜sin tax’, the Senate is now concentrating on another bill to raise the value added tax (VAT) rate to 12% from 10%, and to repeal certain VAT exemptions in order to raise at least PHP68 billion (US$1.2 billion) in additional annual revenues for the cash-strapped government.
Senate ways and means committee Chairman Ralph Recto admitted that the VAT bill would face more intensive debate than the sin tax. “We are talking about many industries, unlike in the sin tax where we are talking about only two industries – alcohol and tobacco,” he told local reporters.
Mr Recto, like the government as a whole, has seemingly forgotten about a third industry deeply affected by the legislation – duty free.
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