The protracted process to pass the sin tax bill is about to end, with the reformers emerging victorious.
The bicameral conference on the sin tax has had a couple of meetings to reconcile the House and Senate versions. The contentious issues revolve around the structure, the rates, the use of incremental revenues, and the burden sharing between tobacco and alcohol.
The Senate version will produce higher incremental revenues for the first year by having higher tax rates for alcohol compared to the House version. It also has a better structure for alcohol tax rates by making the tax rates for distilled spirits compliant with the country’s obligation to the World Trade Organization. The Senate adopts a de facto unitary tax rate for beer, and the tax rates are assertive, in keeping with the international standard.
But the Senate’s tax structure for tobacco is deeply flawed by a subtle phrasing that provides two tax rates, maintaining the protection to existing corporations (especially the monopoly) and thus defeating the objective of having a unitary tax rate.
Further, the Senate version has poison pills. The first example is the amendment of Senate President Juan Ponce Enrile, which states: “Of the total volume of cigarettes sold in the country, any manufacturer and/or seller of tobacco products must source at least fifteen percent of its Virginia leaf raw materials supply locally.” This violates Article 3.5 of the General Agreement on Tariffs and Trade—“that internal taxes…affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.”
The second example pertains to the amendments of Senator Ralph Recto that provide hard, arbitrary, and inefficient earmarking to certain programs. Recto’s rigid earmarking is, moreover, inconsistent, inconsistent with the principles and parameters that the Senate bill has set for the earmarking for universal health care.
On the other hand,the House version is strong on health objectives, expressed in terms of steep tax rate increases for the first two years. Although it adopts two tax tiers for manufactured cigarettes, the unitary rate will eventually be attained although at a slower pace, because of the price reclassification based on a survey done every two years.
The weakness in the House version lies in the low tax rates for fermented liquor (due to the intervention of the Nationalist People’s Coalition or NPC) and the wide tax rates between imported and local products for distilled spirits, allegedly violates the World Trade Organization rules.
After long and intensive discussions, the bicameral conference has forged agreements on the key issues, namely:
1. A movement to a unitary tax rate of PHP 30 per pack by 2017 for manufactured cigarettes.
2. A movement to a unitary tax rate of PHP 23.50 per volume liter by 2017 for fermented liquor.
3. A hybrid tax (composed of specific and ad valorem taxes) for distilled spirits, which by 2015 will be equivalent to a specific tax rate of PHP 20 per proof liter and an ad valorem tax rate of 20 per cent of net retail price per proof.
4. The indexation of the specific tax rates by four percent annually, once the unitary tax rates are consolidated.
5. The removal of the price classification freeze.
All these are big gains. The incremental revenues of less than PHP35 billion, however, will fall short of the desired goal of the Executive, especially the Department of Health. But the victory must primarily be seen from the perspective of the great health impact (especially the significant reduction of smoking prevalence and the associated economic costs) and the long-term institutional impact of the reform.
The members of the bicameral conference thus deserve praise for having made these agreements.
The bicameral conference’s unfinished business is limited to the issue of earmarking. We trust that the bicameral conference will be guided by the principle that any earmarking be flexible, efficient, and aligned to the priority programs of the Department of Health and PhilHealth. As a rule, the fixed and exaggerated allocations that Senator Recto insists on violate such principles.
Still and all, the reform advocates cannot count the chickens before they are hatched. Bantay Bicam! Remains a watchword.
Reports are circulating that some members of the bicameral conference want to re-open the talks on the issues that have already been agreed upon. This must be rejected.
The bicameral conference has locked in the reforms enumerated above. Since the media have informed public on these reforms that have been agreed upon, the hands of members of the bicameral conference are tied.
Any backward step, any dilution of these reforms will create an upheaval, the impact of which will be far greater than the storm that led to Recto’s resignation as Chair of the Senate ways and means committee.
Not only will a reversal create outrage in the coalition composed of hundred of thousands of doctors and nurses, former Cabinet officials, economic reform and good government advocates, tobacco-control activists, and the basic sector organizations, representing the millions of the poor. It will also provoke the government reformers, including the President, who have used their political capital to advance these reforms.
It will disturb he international community, which has high expectations that growth will be sustained by reforms like the sin tax.
Violating the agreements will be an embarrassment to the bicameral conference members, to the Senate and the House, especially their leadership.
Any attempt to disrupt the agreements can mean only one thing. That a few traditional politicians will follow vested interests even if this means sabotaging a crowning achievement for this country to put in place fiscal, health and institutional reforms.