The sin tax law in 2013: a milestone

WE are seeing a surge of interest among legislators on the Sin Tax Reform Act of 2012 (Republic Act 10351). Both chambers of Congress are in the process of conducting inquiries into this landmark tax legislation.

A few lawmakers, those who opposed the sin tax reforms, claim that the Sin Tax Law has fallen short of its objectives. But the evidence flies in their faces.

The Sin Tax Law has allowed tax collections from tobacco and alcohol products to attain record-high collections in 2013. In fact, the total incremental revenues in 2013 amounting to P51.4 billion surpassed the estimate of P34.1 billion.

Taxes from cigarettes accounted for the lion’s share of the incremental revenues. Of the total incremental revenues, cigarette excise taxes contributed P42.1 billion, or almost 82% of the total. The additional excise taxes collected from alcoholic beverages amounted to P9.3 billion.

Further, this means additional resources for the nation’s public health programs. About 80% of incremental revenues from tobacco excise taxes will be earmarked for universal health care. And if the Department of Health’s official 2014 budget is any indicator, the revenue gains from the Sin Tax Law have been frontloaded to finance the Aquino administration’s health agenda this year. Based on the 2014 General Appropriations Act (GAA), the health department budget has expanded by 57.9%, totaling P83.7 billion. This is, as Health Secretary Enrique Ona himself has affirmed, the single largest budget increase in the department’s 67-year history.

Perhaps the single most prominent increase in the 2014 Department of Health (DoH) budget is the 179% expansion of the National Health Insurance Program’s budget (P35.3 billion), which will subsidize the Philhealth coverage of the Philippines’ poorest 14.7 million families.

No less important, the budget also provides for a 729% financial boost for DoH’s program on Non-Communicable Diseases (P586 million), as well as a 25.7% increase in the funds of its Health Facility Enhancement Program (P13.5 billion).

With this increased pool of resources, the DoH is now in a position to drive forward the realization of Kalusugan Pangkalahatan by 2016.

One main objective of R.A. 10351 is to curb the Philippines’ number one preventable cause of death: cigarette smoking. The full force of higher sin taxes on cigarettes will be felt only in the medium term. But once a unitary tax applies to all cigarette brands, signs show that reduction in tobacco consumption is occurring.

For example, in November 2013, Action for Economic Reforms partnered with the DoH-National Epidemiological Center (DoH-NEC) in conducting a rapid tobacco survey among 304 Cotabato City smokers. The result: 45% of those surveyed reduced tobacco use, and 2% stopped smoking completely. Although another 42% retained their level of smoking, their weekly cigarette consumption declined by 34 sticks on average.

At the national level, we also find indicators showing the decrease in tobacco consumption in 2013. Parallel to greater tax collections from January to November 2013, the Bureau of Internal Revenue (BIR) data show that the total volume of cigarette withdrawn from manufacturing plants declined by 17% compared to the same period in 2012.

Further, according to one AC Nielsen consumer survey released last August, smoking prevalence among consumers aged 20 to 44 years old dropped from 52% to 46% in the first half of 2013.

The presence of underpriced cigarettes in the market has allowed most smokers merely to shift to cheaper brands, rather than forgoing tobacco use. Yet the gap between higher- and lower-taxed cigarette brands will shrink every year, until a unitary tax rate is finally applied on all tobacco products in 2017.

This means that if there is already clear evidence that a slight reduction in cigarette smoking has occurred in 2013, these decreases will become even more evident in the following years.

We must likewise emphasize that the higher tobacco tax rates, have prevented would-be smokers, especially from the youth and the poor, from taking up the habit in the first place.

We also need to cite the other gains: the process of simplifying the tax structure and the ongoing effort to plug the tax leaks, especially in the wake of alleged illicit trade practices.

All told the health and revenue gains from R.A. 10351 are hard to dispute. The Sin Tax Law’s performance will be robust, given that tax rates will continue to go up for the next few years and a unitary tax for tobacco and beer will be secured by 2017.

And if there is one measure that can still be done, it is that higher tax rates can be introduced later to further reduce consumption and thus maximize the health objective.

In the ongoing congressional reviews of the Sin Tax Law, we hope that our legislators will be fully aware of these big health and revenue dividends.

(Mr. Sta. Ana is the coordinator of Action for Economic Reforms and Mr. Cruz is its communications officer.)

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