Yellow Pad

 

The Philippine Congress, particularly the Senate, has a handful of days left to pass important legislation. One of the urgent bills that the Senate should pass is the increase in the tobacco tax rate.

The Executive has strongly endorsed the bill of Senator Manny Pacquiao and has even certified its urgency. Pacquiao’s bill proposes a tax rate of P60 (against the current rate of P35). Subsequently, the rate increases by 9% annually to keep cigarettes less affordable in light of rising income and inflation. Senators Sherwin Gatchalian and JV Ejercito have bills that introduce higher rates — P70 and P90, respectively.

Senator Sonny Angara, the Ways and Means Committee Chair, has consolidated the bills and has submitted a Committee Report that proposes a starting rate of P45 in the first year of implementation, followed by a series of annual P5 increases till the rate reaches P60. Thereafter, the rate automatically increases by 5% as adjustment to inflation.

For many stakeholders — civil society, the medical profession, the Department of Finance (DoF), the Department of Health (DoH), among others — the Committee Report falls short of what is needed to meet health and revenue objectives.

The DoH’s goal is to reduce the smoking prevalence rate from the current 23.3% to 15% by 2022. The proposed rates of the Committee report are estimated to result in 27,757 less smokers, not really dramatic, but the rates can prevent new entrants. Hence by 2022, we can expect smoking prevalence rate to go down to 19.61%.

Moreover, a hefty increase in the rates is necessary to generate the resources for the newly legislated Universal Health Care (UHC) law. The DoH estimates the funding gap for UHC is equivalent to P62 billion in the first year. But the incremental revenue from a tobacco tax rate of P45 is estimated at P14.5 billion

If the advocates had the luxury of time, they could have pushed for the rate of P60 per pack in the first year. (In fact, the optimal tax rate is closer to the Gatchalian bill of P70.) But the time constraint and the political constraint prevent a drawn-out struggle for the reformers to meet the maximum objectives.

In this light, Senator Angara’s Committee Report is welcome, albeit it is not the first-best measure. That is the real world of politics.

Increasing the tobacco tax (to the max) is a popular measure. Pulse Asia’s latest survey on tobacco reveals that 75% of Filipinos support an increase in the tobacco tax, and seven out of 10 Filipinos will vote for a politician who supports a tobacco tax increase.

Yet, it is so difficult to pass such a popular measure. For the tobacco industry has huge resources to influence the behavior of politicians. Thus, some politicians, particularly in the leadership, waver or are afraid to stand up and make a credible commitment to have the bill passed.

Senate President Tito Sotto can only say that the Senate would exert its “best effort” to pass the Committee Report. Why couldn’t he be firm and say that the Committee Report will pass, no ifs and buts? If there’s a will, there’s a way.

More disappointing is the statement of Senator Koko Pimentel: “Let us not overtax businesses to death. If this tax would imperil the viability of a business, then I’ll not agree to it.” In 2012, Senator Pimentel voted for the passage the historic sin tax law. He was proud of his vote, given the tremendous pressure that he faced from the tobacco lobby. The Senate ratified the sin tax by a margin of one vote; hence Pimentel’s vote mattered. My hope is that Senator Pimentel will remain consistent in his tobacco control advocacy.

Messrs. Sotto and Pimentel are both angling for the Senate presidency in the next Congress. My piece of advice to them: Support the tobacco tax. To avoid political disaster, they should not go against the Executive; they should not defy the people’s wishes; they should not undermine the funding for UHC

The good news is that support for a big increase in the tobacco tax rate has broad mutipartisan support. The majority of the senators endorse a high tobacco tax rate. The senators from the opposition like Frank Drilon, Kiko Pangilinan, and Risa Hontiveros have also endorsed the Committee Report.

The tobacco tax reform thus has a fighting chance to win.

But it is also imperative for the leadership of the House of Representatives to adopt the Senate version as expressed in the current Committee Report in the bicameral conference committee. The House version of the tobacco tax is weak. The House’s rate merely increases the tax from the current P35 per pack to P37, followed by a series of paltry increases till the rate reaches P45 in 2022.

The struggle does not end there. Even if we obtain the rates proposed by the Senate in the Committee Report, additional revenue will be necessary to meet the funding gap for UHC. In the immediate future, the advocacy for an increase in the alcohol tax must commence. In the medium term, a new round of tobacco tax rate increases will likewise have to be done.

 

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.