FTA scores RTC decision exempting imported 'sin' products from excise tax

By Marianne V. Go, The Philippine Star

The Fair Trade Alliance (FTA) has questioned the basis of the recent ruling of the Olongapo City Regional Trial Court prohibiting the government from collecting excise taxes on liquor and cigarettes imported into the Subic Freeport.

The RTC ruling sided with a Subic importer who had argued that businesses inside the freeport are tax-exempt based on Republic Act 7227, which states that "no taxes, local and national, shall be imposed within the Subic special economic zone".

But FTA's Labor Convenor Angelito Mendoza stressed that investor-locators in the freeport are tax-exempt "only in relation to the importation of their inputs and other production or business requirements," adding that the law "does not envisage tax exemption for goods which are sold to the larger domestic market outside the freeport."

If the RTC ruling is enforced, the government stands to lose as much as P5 billion in "sin" taxes, he said.

RA 9334, which raises the excise tax on tobacco and liquor starting this year, requires duty-free shops and importers inside economic zones to pay the same taxes.

"The government had difficulty enacting this year the new sin taxes on locally-produced cigarettes and spirits, and here comes the RTC offsetting this by exempting these non-productive importers. This is unfair to the local producers, their workers and the tobacco farmers in the Ilocos. It is also unfair to our cash-strapped government. The RTC decision virtually legitimizes cigarette and alcohol smuggling, and is an outright attack against local producers," Mendoza said.

He argued that "governments worldwide use freeports and export processing zones to promote investments, not as importation zones for untaxed imports sold in the domestic market".

Mendoza added that RA 7227 is a special law providing incentives for investor-locators, not importer-distributors.

Meanwhile, RA 9334 is a law of general application which should cover these importer-distributors, he said.

Due to the RTC ruling, Mendoza reiterated the FTA's call for the abolition of duty-free shops at Clark, Subic and other economic zones.

He pointed out that "in any foreign country you visit, duty-free shops can only be found in international airports."

Earlier this year, the same Olongapo City RTC ruled that Executive Order 165 issued by Malacañang, particularly Section 31 on banning the importation of used motor and right-hand vehicles, is unconstitutional and illegal.

Mendoza noted that EO 165 merely implements the environmental provisions of the Clean Air Act (RA 8749) and the health and safety requirements of RA 8506 banning the importation of right-hand vehicles which are prone to accidents because their conversions into left-hand ones are not properly engineered.

The FTA's position is similar to that of the Department of Trade and Industry (DTI) which maintains the legality of EO 165. "Imported used vehicles, valued at below market prices, distort the playing field for our domestic vehicle producers," Mendoza said.