Imposing high excise taxes on cigarettes and liquor will defeat the government’s twin goals of raising up to P60 billion in additional funds for health care and discouraging Filipinos from smoking and drinking.
Senate President Juan Ponce Enrile told finance and revenue officials pushing for excise tax hikes of up  to 1,000 percent for alcohol and tobacco products that their revenue target of P60 billion is unattainable because exceedingly high tax rates come with unavoidable costs.
One of these is a decline in revenue collections from cigarettes and liquor because a drop in consumption will result to high taxes and, subsequently, high prices.
Enrile said that while he agrees with finance officials and health advocates that there is an urgent need to eradicate diseases from smoking and drinking, they should also bear in mind that “no matter what kind of tax we are imposing, you must always consider first its economic impact” to ensure that objectives are met and irreversible errors are avoided.
The Department of Finance (DoF) is pushing before the Senate a proposal imposing a 1,000 percent tax hike on cigarettes and liquor, particularly those in the low-priced tier, to pave the way for a unitary or single-rate tax system for alcohol and tobacco products.
Enrile said shifting to a unitary system would only be effective if it is done gradually and not abruptly like what the DoF wants to do.  
“It’s not an abrupt one-time, one-tier system. You have to gradually move this three-tiered or four-tiered system  over a period of time until you come to a merging point so that you will not affect the market and your tax harvest so radically,” Enrile told finance officials during one of the hearings conducted by the Senate ways and means committee on the DoF proposal.
Another unavoidable cost of high taxes, Enrile said, is an increase in smuggling, especially with products like cigarettes and liquor, where demand  is generally inelastic.
Enrile noted that smuggled goods in the black market will fill the void if low-income consumers are left with no  affordable choices because of the high prices of  legally produced cigarettes and liquor under a high tax regime.
He had earlier warned the DoF that the Philippine Navy and even the entire Armed Forces would be not be able to prevent the proliferation of smuggling, particularly in the country’s  highly porous entry points in the South.
“What we are trying to find  is what is the best level of tax burden that we can impose that will serve the objectives of everyone,” Enrile remarked.
He said this includes considering not only the objectives of the government, health advocates and major industry players and stakeholders, but also consumers, farmers, workers, vendors and suppliers of raw materials in the tobacco and alcohol industries as well.
Small cigarette manufacturers have reported the presence of smuggled cigarette brands Harvey and Chelsea in Mindanao, which are priced way below the cheapest available legally produced cigarettes in the country.
They had expressed concern during a recent Senate hearing that these smuggled brands could find their way to other parts of the country, including Metro Manila, when high taxes force cigarette manufacturers to price their products beyond the reach of low-income consumers.
Smuggled brands proliferating in the market will eat away at the government’s revenue share from taxed tobacco products, defeating the very purpose of the high tax measure, Enrile and Sen. Ralph Recto, the chairman of the Senate ways and means committee, cautioned finance officials.
Recto said the government can optimize the gains from its proposed excise tax increase on alcohol and tobacco products by finding a middle ground where the tax rate imposed would not encourage smuggling and diminish consumption.
Coming up with this “median” point, Enrile said, is necessary so that the Executive Branch won’t come running to Congress to ask for another tax measure, once its unrealistic P60 billion revenue goal is not met.