The flaws in the Sin Tax law (excise tax on cigarettes), frozen in time by two Republic Acts, have finally started thawing. With President Aquino’s support, the infirmities of the Sin Tax Law of 2004 may finally be corrected, despite pressure from the tobacco companies and Northern Luzon congressmen.

There is much to gain from the reforms. Slapping higher taxes on cigarettes will discourage young people from lighting their first stick, which is readily available on the streets, at cheap prices. It will increase the tax collection from cigarette companies, which is far less than the billions spent in treating smoking-related diseases. The revenues earned from the revised excise taxes will fund the tobacco farmers and universal health care.

On the other side of debate is, of course, the tobacco lobby, which raises the specter of increased smuggling and job losses in the tobacco industry. Suffice it to say that these claims are not backed by studies done by reputable researchers or institutions.

Still, let us discuss one of their key arguments. Tobacco lobbyists usually cite the Supreme Court decision in British American Tobacco v. Camacho to prop up their opposition to overhauling the price classification freeze under the present Sin Tax Law. In gist, the price classification freeze results in lower tax rates for many popular cigarette brands because they are taxed based on their 1996 prices rather their present prices. If there is one big hole in the Tax Code, it is this one.

In British American Tobacco, the Supreme Court said that the price classification freeze “would give the least amount of discretion to the tax implementers” and “would address the problems of tax avoidance and tax evasion.” According to the Court, “periodic reclassification of brands [unlike a price classification freeze] would tempt the cigarette manufacturers to manipulate their price levels or bribe the tax implementers in order to allow their brands to be classified at a lower tax bracket even if their net retail prices have already migrated to a higher tax bracket…”

Why the tobacco companies like this decision, considering its implication that they are inclined to engage in below-the-table practices, is confusing, but that’s that. Going back to the case, we should ask: Did the Supreme Court say that the tax classification freeze is a faultless tax design? Did it say that it is the best policy?

Of course, that is not the case because the Judiciary is not the policy-making branch of the government. When the Court made those statements, it was merely echoing what Congress (the branch that DOES policy) was saying at that time as the basis for the price classification freeze. You see, the British American Tobacco Corporation (BAT) was assailing the Sin Tax Law for alleged violation of the equal protection clause. (Old brands will be taxed lower based on 1996 prices, whereas BAT’s newer brands will be slapped higher taxes based on their present prices.) In order to withstand an attack on equal protection grounds, the Sin Tax Law should pass the rationality test; i.e., there should be a rational basis for the difference in the treatment of old vs. new brands.

So when the Court made the statements quoted above, it was merely saying that Congress had logical reasons for the price classification freeze enough to hold up against an attack on constitutional grounds. It did not say that it was the best policy that Congress can come up with. In fact, the Court even pointed out that there are flaws in the law because to some extent it derogated its avowed goal of fair competition among cigarette brands; but Congress decided that the benefits outweighed the flaws. As the decision said, the Court does not “sit in judgment as a supra-legislature to decide, after a law is passed by Congress, which state interest is superior over another, or which method is better suited to achieve one, some or all of the state’s interests, or what these interests should be in the first place. This policy-determining power, by constitutional fiat, belongs to Congress as it is its function to determine and balance these interests or choose which ones to pursue. Time and again we have ruled that the judiciary does not settle policy issues…”

Now, Congress is taking a different position. The sin tax reforms, known as the Abaya Bill as amended, passed the Lower House in June and are now awaiting, hopefully, approval, in the Senate. Sen. Miriam Santiago has also filed Senate Bill 3249, which incorporates all the proposed changes in the original Abaya Bill and adds more.

The past years have seen more deaths from smoking, but dwindling revenues, because the Sin Tax Law was flawed. Hindsight after all, is 20/20 and Congress is finally correcting the mistakes of the past. As the Supreme Court said in the British American Tobacco case, it is for Congress to decide the best policy direction to take.

Understandably, tobacco companies are wont to see things differently. Forget the number of deaths caused by smoking. Forget hindsight. Forget what experts say. Forget the statistics. Yes, it seems this is what tobacco lobbyists want us to do— for they want to keep the flawed law till hell freezes over.


Michael Ocampo is a former researcher at Action for Economic Reforms ( and is now a lawyer with a Makati law firm.