Philippines ends discrimination against imported spirits

Great news for the UK Drinks Industry. The introduction of a WTO-compliant regime on alcohol and tobacco taxes will end discrimination against imported spirits that was a concern and financial handicap to many UK manufacturers. Wider benefits for the Philippine economy and health sector. This represents a further sign that President continues to push his economic reform priorities.

On 20 December 2012, President Aquino signed in to law a new regime covering increased the so-called “Sin Taxes”. The previous measures date from 2005 and led to a WTO ruling in 21 December 2011 that the Philippines regime discriminated against imported alcohol and tobacco products. The Philippines was given until March 2013 to pass new legislation.All parties will breathe a sigh of relief, or perhaps raise a glass of something suitable.

The major UK interest was in the spirits sector where companies wanted to end the discrimination. Despite the WTO ruling, the legislative process was complex with strong protectionist and political forces at play .  The focus was initially almost exclusively about impacts on the domestic tobacco sector, and the original ruling was quickly lost sight of, with the House of Representatives adopting new, WTO non-compliant, legislation.

The result of the new legislation is that approximately £500 million (2/3rds from tobacco) will be generated in new tax revenues, ear-marked for healthcare related spending. The IMF has welcomed the broadening of the tax base and investment in the health sector.

The competitiveness of British drinks exporters in the market has thus been increased in line with WTO requirements. The bulk of the UK’s imports of spirits will see a reduction in tariffs, while the price of low-end domestic products will go up. A small percentage of the most expensive British brands will see a modest increase (caused by an ad valorem element in the new tax structure). However, these products are not marketed on price.

The “sin tax” bill is important for the Philippines. It will further enhance fiscal stability while strengthening a health sector that is in need of much development. It is a further sign of positive economic reform implemented by president Aquino.