SBMA, traders worried about SC ruling on ‘sin’ taxes

Officials of the Subic Bay
Metropolitan Authority (SBMA), as well as owners of
business establishments in Subic, yesterday warned
that the Supreme Court decision approving the
collection of excise taxes on alcohol and tobacco
products here may degrade the integrity of the free
port regime in Subic.

“This is a worrisome development,” SBMA Administrator
Armand Arreza said, pointing out that Subic’s free
port status “necessarily allows the free flow of goods
within the separate customs territory of Subic.”

“If we were to slap excise taxes on the merchandise
imported by Subic-registered companies, it would be
like changing rules in the middle of the game,” Arreza
said.

“How are we going to attract more investments to Subic
if we cannot defend the special incentives granted to
investors under the law?” he asked.

“This is a big blow to our efforts to develop Subic as
a premier logistics hub in Southeast Asia, as
envisioned by President Arroyo in her 10-point
development program,” he added.

“We have just signed in Philip Morris to put up a
$20-million tobacco leaf warehouse in Subic. Now, what
will happen to that?” the SBMA official rued.

Arreza said about 30 importers, retailers and
warehousing firms in Subic would be directly affected
by Republic Act 9334, or An Act Increasing the Excise
Tax Rates Imposed on Alcohol and Tobacco Products.

He pointed out that under Republic Act 7227, or the
Bases Conversion and Development Act of 1992, these
free port-registered establishments were granted
tax-exempt privileges for the goods they brought into
the Subic Bay Freeport.

The imposition of excise taxes, the SBMA official
stressed, may also affect the operations of other
investors in tourism-related industries here.

“The effect could snowball,” Arreza warned.

“Curtailing the operations of certain locators would
certainly affect both their horizontal and vertical
industry linkages. And for want of some tax pesos, we
could lose entire industries,” he said.

Business leaders in the Subic Bay community echoed
Arreza’s sentiments about the need to preserve Subic’s
attractiveness as a free port.

“It’s okay for the government to seek additional
sources of income, and at the same time to eliminate
technical smuggling in Subic. But what happens then to
the duty-free concept embodied in RA 7227?” said
Aurelio Pineda, executive vice-president of the
Olongapo City Business Club.

Meanwhile, Ariel Indigo, owner of Indigo Distribution
Corp. here, said business locators in Subic will be
consulting with their lawyers on the Supreme Court
ruling to implement RA 9334.

“In the meantime, we will abide by the ruling of the
court,” Indigo said, adding that some of his fellow
locators are planning to file a motion for the
reconsideration of the ruling.

Subic traders have been fighting against RA 9334, or
the “sin tax” law since it was made effective on
January 1, 2005.

Fourteen Subic locator-companies had earlier convinced
the Regional Trial Court (RTC) in Olongapo City to
issue a writ of preliminary injunction to stop the
implementation of the said law, pointing out that some
of its provisions were “unconstitutional”.

The Subic firms also contended that RA 9334 cannot
repeal RA 7227, which considers Subic a separate
customs territory and grants free port locators tax
exemptions.

However, the Supreme Court, in a decision penned by
Associate Justice Conchita Carpio Morales, nullified
the RTC order, saying that the lower court committed a
grave abuse of discretion by stopping the government
from enforcing the “sin taxes” law.

With the implementation of RA 9334, the Supreme Court
said, companies may now “opt not to import, or to
import less of, those items which no longer enjoy tax
exemption.”