Philippines spirits tax violates WTO rules

The World Trade Organisation (WTO) has ruled that discriminatory excise tax on spirits in the Philippines is a violation of WTO rules.

The WTO summary of findings reads:

“The measure at issue is an excise tax on distilled spirits, whereby a low flat tax is applied by the Philippines to spirits made from certain designated raw materials, while significantly higher tax rates are applied to spirits made from non-designated materials.

In the Philippines, all domestic distilled spirits (mostly gins, brandies, rums, vodkas, whiskies and tequila type spirits) are made from one of the designated raw materials, cane sugar, whereas the vast majority of imported spirits are made from non designated materials (e.g. cereals or grapes). Consequently, all domestic spirits are subject to the low flat tax, while the vast majority of imported spirits are subject to one of the higher tax rates.

The Panel found that because imported spirits are taxed less favourably than domestic spirits, the Philippine measure, while facially neutral, is nevertheless discriminatory and thus violates the obligations under the first and second sentences of Article III:2 of the GATT 1994.”

In the US, the Distilled Spirits Council has applauded the decision and has urged the Philippine government to revise its excise tax structure immediately to comply with the ruling.

The WTO action followed the US government’s decision in January 2010 to launch a formal WTO dispute against the Philippines’ excise tax regime.

Peter Cressy, president of the Distilled Spirits Council said: “For well over a decade, the Philippines has discriminated against imported spirits by assessing a tax that can be as much as 43 times greater than the tax rate applied to domestically-produced spirits.

“With a trade barrier of that magnitude, it is no wonder that US spirits have barely made a dent in the nearly $3.4 billion Philippines spirits market.”

In 2010, US distilled spirits exports to the Philippines were valued at just $997,000 (FAS export value); globally, US spirits exports surpassed $1 billion for the fourth consecutive year.