The virtues of the Sin Tax Law retold

The story about the sin tax reform experience has a familiar ring to it: the tale of the universe conspiring to make a good idea happen. Indeed it happened, and it happened in a hurry.

In the House of Representatives, the proposed measure carried its unique identifier, House Bill No. 5727, entitled, “An act restructuring the excise tax on alcohol and tobacco products.” It was filed on Jan. 25, 2012 and referred on First Reading to the Committee on Ways and Means.

For four quick calendar months the bill was put through the usual mill until the body approved it on second reading, which opened the way straight to the third on the same session day, upon which the measure was put to a vote: 210 “yeas,” 21 “nays,” with 5 abstentions. Only a little more than one calendar month was all that the Senate needed to approve its version on third reading, with 15 senators voting in favor, two against, and no abstention.

Both bills bore the stamp of presidential support: they were certified as urgent. Symbolically, it’s a clarion call for legislative support, which presupposes a completed spade work so as not to go unheeded. Or, one that entails an abiding faith on the power of the Golden Rule to persuade. In the whole scheme of things, the one force in the universe that owns the capacity to do this is the president. Congress holds the power of the purse, but the Executive enjoys the power to disburse.

The President, however, was not conspiring solo. The constellation of forces at work included those from civil society who coalesced around the sin tax reform advocacy. They were there from the outset playing the “background game” — pushing the reform item into the front of the legislative-executive action sequence, building links with the key actors from both branches, providing staff support to fellow advocates, and such. (Full disclosure: the Action for Economic Reforms was co-leader of the tacit reform coalition.)

As the coalition snowballed into Congress, its ranks had broadened to include the “white army” of medical doctors and associations, health organizations, and other professionals. Its strength reinforced in terms of number and prestige, it joined the game in the open and won with its allies. The sin tax bill was signed into law and started to take effect on Jan. 1, 2013.

Why do we need the law, in the first place?

Tobacco is what you get when you roll two of life’s certainties, death and taxes, into one. Tobacco kills close to 88,000 Filipinos every year, or more than 240 every day. Most of them die of diseases stemming from tobacco use, such as cancers, heart diseases and respiratory diseases. On top of this are the many more who die from secondhand smoke and the infants, children and young adults who succumb to illnesses caused by exposure to cigarette smoking.

Disease is an evil that tobacco brings. Because of the tons of conclusive evidence giving truth to this belief, only tobacconists find this disputable. And we know why: tobacco brings in money as well, far more as corporate profit than as tax proceeds. That was before the sin tax reform became a law. Tobacco products were under-taxed and the tax structure lent itself to tax avoidance and corruption.

Meanwhile, smoking related diseases were incurring costs which government had to provide for by way of health facilities and services.

In 2003, for example, a hefty P45 billion were spent in treating four major diseases caused by smoking. It was an untenable arrangement that had to be corrected.

One corrective approach is to use taxation as “penance” for sin. You raise more money for public use, but you don’t necessarily stop the sinning itself (you’re paying your way out of it instead).

The Sin Tax Law is ingenious for using an approach that takes taxation as “deliverance” from evil. You raise the tax high enough to hike cigarette prices: smoking quit rates should go high and smoking start rates should go low, most likely among the poor. The scheme rests upon one economic idea as core assumption: the idea that demand for a particular good responds to changes in its price, and the response is measurable.

So far the scheme is working.

From 30% in 2011, the smoking prevalence dropped to 25% in 2015. The Philippine College of Physicians reported that there were 3.5 million less smokers in 2013, cutting down the total to almost 14 million. I need the figures on smoking intensity (number of sticks per smoker) and many more of such data at retail level, to appreciate the effects better, but these are slow in coming.

Our law is actually a health measure confused to being a fiscal one.

Hence, the big incremental revenues have been earmarked largely to fund the needs of universal health care, with particular attention given to the poor. From P53 billion in 2013, the budget for health almost tripled to P142 billion in 2015. The extra money has allowed government to pay the premiums of 52 million poor Filipinos in 2015 (from only 21 million in 2013) as beneficiaries of the social health insurance program.

The Sin Tax Law is up for review by the new Congress anytime soon. Overhauled was the old universe and out there is a constellation of forces that remain unknown. If change is coming to our law, I hope it’s not for the bitter.

Mario M. Galang is a senior fellow of Action for Economic Reforms and a development and governance specialist.

No comments yet.