TOBACCO EXCISE TAX: BOON OR BANE? (PART 1)

The Failure of Republic Acts 7171 and 8240

First of three parts

The eyes and ears of almost every households in Ilocos Norte are set on the unfolding face-off between two political families in the province – the Marcoses and Fariñases. The battle for public opinion centers on the alleged misuse of P66.45 million from theprovince’s share of the Republic Act 7171 funds by Governor Imee Marcos. However, this is not the first time that allegation of misuse and corruption of the fund derived from the government’s tobacco excise tax collection hogged the national media and Congress. During the impeachment proceedings against former president Joseph Estrada, state witness and then Ilocos Sur governor Luis“Chavit” Singson claimed that he let Estrada pocket P130 million from theprovince’s share of the fund.

GREEN GOLD. Tobacco, the main cash crop in Ilocos also provides a hefty income for local government from the 15% share of tobacco-producing provinces provided under Republic Acts 7171 and 8240. 

RA 7171 and another legislation, RA 8240, set aside 15% of the total excise tax collection from tobacco products and derivatives for tobacco producing provinces. The former governs the share for the Virginia-type and the latter for the Burley and Native varieties. The huge annual share of tobacco-producing provinces grew significantly with the passage of RA 10351 or the Sin Tax Law in 2012. Based on the Department of Finance figures, about 80% of the total sin tax collection comes from tobacco products. Without a doubt, funds provided by the two laws comprise a significant part of the annual income of the provinces of Region 1, especially with the 4% annual increment taking effect on 2018.

In 2016 alone, La Union, Ilocos Norte and Ilocos Sur received a total of P1.41 Billion from their 2014 excise tax share with Ilocos Sur receiving the biggest share at P894.07 million. These significant proceeds from the crop, from the government’s standpoint overshadows the hardships and high cost of production that farmers have to shoulder to produce it.

In theory, earmarked funds from RA 7171 and RA 8240 are favorable means to ensure that farmers benefit from corporate profit through the government’s tax collection and distribution system. LGU recipients are expected to utilize the funds for specific programs provided under the law that will uplift the lives of tobacco farmers and promote rural development.

On the contrary, present social conditions where government positions are treated as business opportunities, made these allocations serve as milking cows for politicians, especially political dynasties to sustain patronage politics and influence. The touted “green gold” failed to resolve the age-old problem of widespread landlessness and poverty that persists in the Ilocos countryside. In Ilocos Sur for example, poverty incidence increased in five out of the Top 10 LGUs with the highest accumulative RA 7171 shares from 2010-2014.

FAILED DEVELOPMENT. Two of the top recipients of the cumulative RA 7171 funds from 2010-2013 are among the LGUs that incurred an increase in poverty incidence in the same period.

Instead of utilizing funds from RA 7171 and RA 8240 to increase the farmers’ purchasing power, LGUs gave morsels for production assistance and incentives, and credit agricultural facilities while chunks went to the local chief executive’s pet program, infrastructure projects and dubious investment undertakings. Such is the case of the P213 Million allotted by the provincial government of Ilocos Norte for the Programang Ikauunlad ng Mamamayan Ekonomiya at Ekolohiya (P-IMEE) intended to finance programs and projects chosen by Governor Marcos.

A May 2009 Newsbreak Special Report likewise outlined at least P1.30 Billion share from RA 7171 that was, according to the Commission on Audit, misused, misappropriated and unaccounted mostly during the governorship of Singson. Questionable projects cited by state auditors include the Ilocos Sur Tomato Paste Plant and 34 flu-curing barns. Also in 2013, Ombudsman Conchita Carpio-Morales ordered the filing of charges Chavit Singson, and former Ilocos Sur Governor Deogracias Victor Savellano (currently the Representative of the Fisrt Congressional District of the province) for misusing P26 million of the province’s share.

The deliberate use of the excise tax share for patronage politics instead reinforced the chains of indebtedness and exploitation created by tobacco cultivation. With a meager assistance and limited opportunity, the readily available capital and market for the crop provided by usurers, intermediaries, trading centers and tobacco companies make the cultivation of the plant appealing especially for peasants and small-owner tillers that comprise the majority of farmers in the region.

Thus, in practice, despite the laws’ provisions and public finance policies, RA 7171 and RA 8240 failed to deliver the meaningful change to the Ilocos countryside. What both legislation provided is the false hope that funds will flow for rural development. However, with no definite mechanism to ensure that appropriations directly benefit and uplift the economic capacity of farmers, politicians became the main beneficiaries of the fund.