By Pia Rodrigo
In December 2020, Tobacconomics launched the first edition of its “Cigarette Tax Scorecard,” a study assessing cigarette tax policy performance in more than 170 countries between 2012 and 2018. The good news is that the Philippines ranked seventh in total performance, together with Bahrain, Canada, and Saudi Arabia. Among all East Asian countries, the Philippines scored the highest, with an overall score of 3.75 out of five.
The scorecard, which uses data from the World Health Organization, took into account four scoring components: absolute price of cigarettes, changes in cigarette affordability, share of taxes in retail price, and tax structure.
While the study emphasized the huge impact of tax increases on reducing tobacco use among the vulnerable, it concluded that most countries are failing to tax cigarettes effectively. Almost half of the countries in the study scored less than two out of the maximum five points.
The Philippines, however, is cited as one of the five countries with the greatest improvements in cigarette tax policy from 2012 to 2018. In terms of change in cigarette affordability and tax structure, our cigarette tax policy received the highest possible score of five.
Our high overall score can be attributed to our landmark cigarette tax reforms over the past decade, particularly the Sin Tax Law of 2012 and the Tax Reform for Acceleration and Inclusion (TRAIN) Law of 2017, which significantly raised taxes on tobacco products, made cigarettes less affordable, and simplified our excise tax system.
The Sin Tax Law was the most critical of our excise tax reforms, as it overhauled our previously complicated excise tax system. Aside from an immediate increase in excise tax rates and automatic annual cigarette tax increases, it introduced unitary tax rates which simplified tax administration, removed the “price classification freeze” so that brands pay taxes based on their respective current prices rather than 1996 prices, and earmarked incremental excise tax revenues to fund universal health care (UHC) for Filipinos and alternative livelihood programs for tobacco farmers.
While the outcomes of these reforms are laudable, the study acknowledged that the four grading components in the scorecard failed to measure the effectiveness of tax administration, which is critical to minimize tax avoidance and evasion. Thus, for the gains from our past reforms to be sustained, we need to be vigilant in monitoring tax administration and compliance.
A 2020 study by Filomeno Sta. Ana III and Jo-ann Diosana showed that the series of disruptive tax rates imposed in the Philippines since 2012 creates an incentive for cigarette producers to take part in illicit trade. While we have strengthened tax administration, giving us relatively effective control of illicit trade, the government can do more to combat it through putting in place a tracing and tracking system to record the movement of cigarette packs through the supply chain and involving local government units in preventing illicit trade.
Aside from assessing countries’ cigarette tax policies, the study also articulated a crucial point moving forward: given the COVID-19 pandemic and economic crisis, improved tobacco tax policies are a golden opportunity to raise revenues for economic recovery while promoting public health.
Indeed, the Philippines needs to mobilize revenues to recover from the pandemic. Numerous surges, lockdowns and our inability to keep the virus at bay have taken their toll on our economy.
The pandemic has led to large deficit spending, although we urge government to spend more aggressively for health and social protection. But as the pandemic subsides, the deficit has to be rolled back gradually, even as necessary spending for the better normal remains. In this context, new tax revenues are critical, especially for health expenditures. Now, more than ever, we see the urgency of augmenting funding for universal health care, as the UHC Law has yet to be implemented since its passage in 2019. We need more fiscal space to mitigate the consequences of the pandemic and finance health system improvements, and raising tobacco taxes further can provide us that space. Thus, the next administration will find it relevant to again significantly increase tobacco taxes.
Beyond its revenue implications, tobacco taxation is primarily a public health strategy, as it leads to higher cigarette prices, which lower smoking prevalence and prevents the initiation of new smokers. The Department of Science and Technology – Food and Nutrition Research Institute’s 2019 Expanded National Nutrition Survey (ENNS) showed that smoking prevalence among adults over 20 is at 19.9%, a large drop from the 2018 rate of 20.7%, 2013 rate of 25.4% and 2008 rate of 31%. These huge drops in smoking prevalence can be attributed to our tobacco tax reforms in the past decade.
Smoking is linked to increased risk of disease severity in COVID-19 cases, which makes promoting public health and reducing smoking prevalence all the more important at this time. Reducing smoking prevalence will decrease the burden of tobacco-induced diseases on our overstretched health system and allow us to build a better, healthier new normal — one with a health system that has the capacity to handle future surges and pandemics.
Thus, tobacco taxes have three major benefits: they improve health outcomes and increase government revenue in the short term, but in the long term, they could reduce the impact of future COVID-19 surges and crises on our health system.
We hope that health advocates and legislators recognize the need for further increases on tobacco taxes post-pandemic. This is a crucial step we need to take to rebuild and strengthen our healthcare system and recover from this monumental health and economic crisis.
The Tobacconomics Cigarette Tax Scorecard can be accessed here: https://tobacconomics.org/research/cigarette-tax-scorecard/.
Pia Rodrigo is the communications officer of Action for Economic Reforms.