This page was published on September 19, 2012

SIN TAXES

House Bill 5727, or the Sin Tax Bill, aims to restructure the existing taxes imposed on
alcohol and tobacco goods. Duties on these products are a potential revenue source
that will help fund the Universal Health Care Program of the administration. Likewise,
higher taxesand consequently higher costsare seen as a deterrent to the
consumption of sin products, whose adverse effects are mostly borne by the poorer
segments of society.

WHY ARE WE SUPPORTING IT?

1. To promote health by discouraging vice.
2. To collect more revenue for healthcare.

HEALTH
According to the Department of Health (DOH), the Philippines has an estimated 17.3
million tobacco consumers, the most number of smokers in Southeast Asia. Filipinos on
average consume 1, 073 cigarette sticks annually, while the smokers in the region
consume less than a thousand sticks yearly. This high consumption rate is seen as a
result, among others, of the very low cigarette prices in our country.

Source: Action for Economic Reforms. Published with permission.

Smoking is responsible for 71 percent of lung cancer deaths in the world. Consequently,
lung cancer is the leading form of cancer in the Philippines. DOH statistics reveal that
10 Filipinos die every hour because of smoking.
According to the DOH, a 10 percent increase in tobacco taxes will reduce the number of
smokers by two million by 2016. A significant decline in the number of smokers will
likewise reduce the number of smoking-related deaths.
Meanwhile, drinking alcohol, though effects are relatively less severe health-wise than
smoking, has posed a number of costs on the individual and society:

Source: Action for Economic Reforms. Published with permission.

REVENUE

The Department of Finance (DOF) has determined the following flaws in the current
system of taxing sin products:

The current system is still under the Price Classification Freeze, wherein old
brands are taxed differently from new ones.

The system follows a multi-tiered tax structure that is prone to the downshifting of
smokers to cheaper cigarette brands (which does not discourage smoking). For
example, based on 1994-2010 statistics provided by the Bureau of Internal
Revenue (BIR), it was observed that consumers had downshifted from mediumpriced cigarettes (more than 30% consumption in 1994 to less than 20% in 2010)
to low-priced cigarettes (less than 40% consumption in 1994 to more than 50% in
2010). This also applied to beers: consumption of low-priced beer ballooned from
less than 40% in 1994 to more than 70% in 2010.
The lack of price indexation results to declining tax burdens, as tax is eroded by
inflation. In effect, the 2004 effective burden tax price has decreased in 2010
ranging from a 1 percent to 9 percent decrease in tax burden (based on BIR 4th
quarter survey).
The taxation of distilled spirits is non-compliant with World Trade Organization
(WTO) rules.

The sin tax proposes the following reforms:

Maintain the specific form of excise taxation (e.g., per piece, per pack, per proof
liter) to discourage consumption, have more revenues that are predictable and
easier to administer, and devoid of incentives for manufacturers and importers
with under-invoice products;
A shift from a multi-tiered tax structure to a single tax structure: (1) For cigarettes,
a two-rate structure of P14 and P30 per pack for the 1st two years, and a uniform
rate of P30 per pack of cigarettes on the third year. (2) For fermented liquor,
immediate implementation of unified rate of P25/liter. (3) For distilled spirits, a
two-year transition period to a unified rate of P150 per proof liter on the third
year.
Adopt an automatic annual adjustment of tax rates using relevant NSOestablished tobacco and alcohol indexes after the third year.
A shift from a raw-material criterion to an alcohol-content criterion in taxing
distilled spirits.
Revenues from sin taxes are to augment the funds of the Aquino administrations
universal health care program.
The continued sharing with tobacco farmers of the incremental revenues.
Source: Department of Finance.

UNIVERSAL HEALTH CARE (UHC)

The total cost of universal healthcare (UHC) from 2012 to 2016 will amount to P682.1
billion. The national governments financing requirement for the next five years amounts
to a total of P224.8 billion or a 33 percent share in the UHC cost. Additional revenues to
be brought about by the proposed sin tax reform are being viewed as one of the main
sources for UHC national government financing.

P92.7 billion will account for the national government covering for a 100 percent
subsidy for the premium of 5.2 million or the bottom 20 percent of the poorest
families.
P55.3 billion will account for a 50 percent subsidy for the next 5.6 million of
poorest families (the other half will be funded by the local government).
P76.8 billion will account for investment subsidies in the health sector.

Sin Tax expands health coverage in the Philippines

May 2015

At least 1 in 4 Filipinos die from heart disease, stroke or another noncommunicable

disease (NCD) before the age of 70. Many of those deaths can be prevented, provided
people can obtain the health services they need.

Two years ago, finances to cover NCD care at both the individual and country-level were
strained. Poor and indigenous populations had two options: skip treatment because they
could not afford to pay for it, or seek care and be forced into deeper debt.

The problem was that Kalusugan Pangkahatan, the Philippine Universal Health Care
programme aimed at ensuring every Filipino receives affordable and quality health
services, was not reaching the most vulnerable and remote populations. It lacked
resources to fund insurance premiums, recruit health-care workers and build additional
health facilities in poor and remote areas.
But, in December 2012 the countrys health care financing system drastically changed.
The newly passed Sin Tax Reform bill increased taxes on all tobacco and alcohol
projects, providing a new injection of funding that enabled the Philippine Government to
enrol more people in universal health care and scale-up NCD prevention services in
primary care.

Increasing the health budget

The taxes are working. Within the first year, they raised more than USD$1.2 billion and
allowed the Philippines to provide health care to an additional 14 million families or roughly
45 million Filipinos. Four years ago, roughly 74% of the population was enrolled in
PhilHealth, the national health insurance programme. Today, 82% of the roughly 100 million
people living in the Philippines are covered.

Health is the right of all people. Were confronting vices like smoking and drinking and
turning them into good, says Jeremias N. Paul, Jr., Undersecretary at the Philippine
Department of Finance. The sin taxes are not only a win for health care; theyre a win for the
poor in our country who would not be able to afford health care otherwise.
Within two years of passing the law, the Philippine Department of Healths budget increased
from US$1.25 billion to nearly US$2 billion.

Revenues from the sin tax are earmarked for specific programmes. Currently, 15% is
allocated towards programmes to help tobacco farmers and workers find livelihood
alternatives. The remaining 85% goes to fund universal health care, upgrade medical
facilities, and train doctors and nurses.

The new taxes were not easy to pass. Our government started working on reforming the tax
structure to impose excise taxes on tobacco and alcohol in 1997, but the strong tobacco
lobby hindered our efforts, says Paul.

In 2012, a massive civil society communications campaign helped influence legislature and
the public. As a result, the law passed.

Reducing tobacco, improving health

With an average of 240 Filipinos dying every day from smoking related diseases, the sin tax
is also preventing young people from taking up the deadly habit and encouraging others to
quit.

Stopping people from taking up smoking and encouraging smokers to quit saves lives and
saves money that can be spent tackling other health challenges, says Dr Julie Lyn Hall,
WHO Representative in the Philippines. We continue to work closely with the Government of
the Philippines and strongly support their pioneering work in the country to end tobacco use.

But challenges still exist. The Philippines still has one of the most affordable tobacco prices
in the region reaching as low as $0.02 per stick and illicit trade is a challenge. While
revenues are good, universal health care has not reached 100% of the population.

In the next year, the Philippine Department of Health will begin implementing additional
health programmes funded by the sin taxes. "The resources generated from the sin tax will
be instrumental in delivering high impact breakthrough plans, both in terms of health facility
enhancement and provision of health professionals towards Universal Health Care," says
Janette P. Loreto-Garin, Secretary of Philippine Department of Health. "These high impact
breakthroughs will reduce maternal, infant and child mortality, HIV incidence, and strengthen
our service delivery network."
WHO Global Coordination Mechanism on the Prevention and Control of NCDs
Funding for national efforts to prevent and control NCDs remains very limited and innovative
financing approaches, like the Philippine sin tax, are just emerging. In 2013, only 50% of
countries had national plans and budgets to prevent and control NCDs.

WHOs financing working group under the Global Coordination Mechanism on the Prevention
and Control of NCDs is assessing the current situation and recommending ways and means
of encouraging governments and non-state actors to increase NCD financing.

Through innovate financing, more governments will be able to implement their national NCD
plans, and the worldwide goal of reducing premature mortality due to NCDs by 25% by 2025
can be achieved.

Aquino signs historic sin

tax bill into law
Published 11:36 AM, December 20, 2012

The law imposes higher taxes on tobacco and alcohol products, overcoming a
strong industry lobby that kept prices in the Philippines among the cheapest in
the world.
It will generate additional revenues of roughly P34 billion in the first year of
implementation that will be spent for the universal health care program and
tobacco farmers' livelihood.
Aquino, who flexed his political muscle to get the measure passed, thanked
lawmakers and advocates who helped push for the reform bill.
"Many believed it was impossible to pass the sin tax bill. Those who are opposing
it are strong, noisy, organized, and they have deep pockets."
"But we have proven: nothing is impossible for Filipinos who are sailing in the
same direction, whose hearts are in the right place, and who are ready to fight for
their principles," he said.
He then gave assurance that the law will provide "a level playing field" for industry
players. "It's not fair that different taxes are applied on the same products," he
stressed.

Passing the measure is a milestone for Aquino, who succeeded in what his
predecessors tried but failed to do. Efforts to restructure the excise tax system
never made it out of committee level in Congress in nearly 16 years.

Debates, controversies
The road to a reformed sin tax structure was thorny. It was full of heated debates
that diluted what was initially an ideal bill, as well as controversies that saw the
resignation of some lawmakers from their committee posts.
In the Senate, ways and means committee chairman Senator Franklin Drilon
pushed for the measure, saying it will not only increase government collections,
but also discourage the poor from consuming sin products and keep them from
getting sick.
But Senators Ralph Recto and Ferdinand "Bongbong" Marcos Jr argued that the
bill would displace tobacco farmers and exacerbate smuggling.
Drilon became committee chair after Recto resigned from the post. Recto
stepped down when he drew flak for submitting a "watered-down" version to the
plenary that sought to raise only P15 billion in revenues. He was also accused of
engaging in "secret" meetings with tobacco companies.
Drilon submitted a substitute bill that sought to raise P40 billion, which theSenate
amended and approved. The Aquino administration had proposed P60 billion.
Similar debates happened in the House of Representatives where an alleged
strong lobby by alcohol producers cut the targeted revenues in the chamber's
version to P31 billion.
Reports quoting administration sources also revealed that Batangas 2nd District
Rep. Hermilando Mandanas was ousted from the House ways and means
committee chairmanship due to differences with Malacaang on sin taxes.

At the bicameral conference committee, where the House and Senate reconciled
their versions, debates centered on the burden-sharing between tobacco and
alcohol in generating the additional revenues and whether the government can
make good on its promise to spend the funds as planned.
The reconciled version approved by both chambers of Congress seeks to
generate the following amounts:
2013 P33.96 billion
2014 P42.86 billion
2015 P50.63 billion
2016 P56.86 billion
2017 P64.18 billion

The burden-sharing between tobacco and alcohol is as follows:

2013 69%-31% (ratio of tobacco to alcohol)
2015 66%-34%
2016 65%-35%
2017 64%-36%

Tobacco livelihood, health care

The incremental sin tax revenues will be used to provide health care benefits to
poor families, and improve the livelihood of tobacco farmers.
The final earmarking is as follows:

After deductions under Republic Acts 7171 and 8240, 80% of the
remaining balance of the incremental revenues will be allocated for universal
health care, which will increase enrollment of the poor in the Philippine Health
Insurance Corp.; the attainment of Millennium Development Goals; and health
awareness campaigns.
The 20% shall be allocated nationwide based on political and district
subdivisions for medical assistance and health enhancement facilities
program, the annual requirements of which shall be determined by the
Department of Health.

RA 7171 (An Act to Promote the Development of the Farmers in the Virginia
Tobacco-producing Provinces) states that 15% of collections form excise taxes on
tobacco products will go to provinces where Virginia tobacco is produced.
RA 8240 (An Act Amending Sections 138, 140 & 142 of the National Internal
Revenue Code) provides that 15% of the additional revenue collected from the
excise tax on tobacco products be allocated and divided among the burley and
native tobacco-producing provinces.
Raising excise taxes is just one of the measures taken globally to control tobacco
use. In the Philippines, anti-tobacco groups are also pushing for plain packaging
to remove companies' advertising advantage. - Rappler.com