“Republic Act 10351, or the Sin Tax Reform Law, is one of the landmark legislations under the Aquino Administration. It is primarily a health measure with revenue implications, but more fundamentally, it is a good governance measure. The Sin Tax Law helps finance the Universal Health Care program of the government, simplified the current excise tax system on alcohol and tobacco products and fixed long standing structural weaknesses, and addresses public health issues relating to alcohol and tobacco consumption” (www.dof.gov.ph/index.php/advocacies/sin-tax-reform).
“Many thought it was impossible to pass the Sin Tax Reform Bill: the enemy is strong, loud, organized, and has deep pockets. But, as we have proven time and again, nothing is impossible with the Filipino nation rowing in one direction, heart in the right place, and ready to stand up for its principles,” President Benigno S. Aquino III said at the signing of the Sin Tax Reform Act, December 20, 2012 at Malacañang Palace.
Though civil society rallied for its approval, and the bill was certified urgent by Pres. Aquino, it took months of deliberations before Congress passed the Sin Tax Law (STL), finally winning by just one vote in the Senate. It has been hailed as “the single most important health policy legislation of the past decade” in the Philippines (Kaiser, Kai, Caryn Bredenkamp, and Roberto Iglesias. 2016. Sin Tax Reform in the Philippines: Transforming Public Finance, Health, and Governance for More Inclusive Development. Directions in Development. Washington, DC: World Bank).
The 2016 World Bank review cited above critiqued STL’s performance in the last three years of the Aquino administration, at the cusp of its conveyance to Pres. Rodrigo Duterte’s management. By law, a congressional committee was mandated to review the impact of the STL in July 2016.
“We consider the Sin Tax Law or Republic Act 10351 to be a very good law. Our position is to fully implement the law and let it run its course,” the new Finance Secretary Carlos Dominguez III said in a statement (The Philippine Star Dec 9, 2016). The STL provided for a multiyear transition to a new tax regime, with full implementation stretching to 2017 when all cigarettes will be subject to a single unitary excise tax of ₱30 ($0.70) per pack after a quadrupling of the lowest excise tax tier of ₱12 in 2013 from ₱2.72 in 2012. After 2017 the excise tax would be increased automatically by 4 percent per year. The STL retained revenue earmarking for tobacco-growing regions (almost equal to 15 percent of tobacco revenues), with a major increase in these transfers slated for 2015, based on 2013 revenue realizations (World Bank study, 2016).
By 2016, the STL beneficiary, the Department of Health (DOH) budget was triple its 2012 level (in nominal terms), reaching ₱122.6 billion. By end-2015, the coverage of the poor and near-poor in the National Health Insurance Program (Philhealth) tripled to 15.3million families (Ibid.). Sin tax revenues were also subsequently used to subsidize the insurance coverage of senior citizens, further expanding access to care among the more vulnerable. Moving to a unitary excise tax (abolishing the easily manipulated multi-layered ad valorem taxes) promoted greater transparency and accountability in the allocation of health insurance subsidies by using existing official poverty-targeting mechanisms and by mandating annual accountability reports on the implementation of the STL by all concerned agencies (Ibid.).
To Sec. Dominguez’s consternation, instead of the mandated review of the landmark STL, the House Ways and Means Committee approved within a record one week House Bill 4144, which reversed the STL, and aimed to bring back the onerous two-tier tax system (lower tax for cheaper cigarettes), which under RA 10351 was set to be unitary beginning Jan. 1, 2017 (The Philippine Star, op. cit.). The Department of Finance already had its plan to raise excise tax on tobacco and alcohol anew by 2018 under its comprehensive tax reform program (CTRP).
Civil society and social rights groups protested rabidly on the to-and-fro for the new Sin Taxes in the House of Representatives, especially that 85 percent would be earmarked for Universal Health Care (UHC) and 15 percent for displaced/reoriented tobacco farmers. The DoF had warned that no way would the maximum tax proposed by Representatives of P45/pack be enough to fund even the first year of UHC’s implementation (2020). The program is estimated to cost around P257 to 258 billion, which the government can cover from its current funding sources from the national budget, the Philippine Amusement and Gaming Corp. (PAGCOR) and the Philippine Charity Sweepstakes Office (PCSO) in the amount of P195 billion. But without “sin” tax reform, UHC will be left with a funding shortfall of around P62 billion (dof.gov.ph).
“Sin taxes are not whimsical impositions by greedy governments. Such taxes are carefully calibrated according to the social costs incurred by consumption of certain products,” Sec. Dominguez said (dof.gov.ph May 17, 2019). After two and a half years of both houses of Congress flip-flopping on the tax rates, Senate Bill 2233 (basically adopted from the DOF and DOH recommendation) was approved with a vote of 20-0, increasing the excise tax on cigarettes by P45 per pack effective Jan. 1, 2020; P50 per pack in January 2021; P55 per pack in January 2022 and P60 per pack effective Jan. 1, 2023. This will be followed by a five-percent annual tax hike starting Jan. 1, 2024 (The Philippine Star June 4, 2019).
Finally, finally. But some mischievous minds are saying that it was curious that after that much delay in deciding on the sin tax rate increases, it was signed immediately by both Houses of Congress (overnight transmission and uncharacteristic approval in toto by the Lower House), and delivered practically at the close of the 17th Congress. Siempre naman, the May 13 mid-term elections were just over. Was it not good timing for incumbent legislators to wash hands and show pro-tobacco lobbyists: what can we do — there is social clamor for the urgent health issues on addictive tobacco use, and the DOF clamor to fill the funding gaps of UHC. Neat escape, because if ever there was indeed some lobbying against the increased sin taxes, “utang na loob” or the debt of gratitude would not be on the incoming 18th Congress but would be extinguished with the outgoing 17th Congress.
The World Bank review of the STL recognized “a challenging (Philippine) political economy characterized by pronounced rent seeking and elite capture… in which special interests had often proved hostile to major reforms seeking to serve the broader public interest” (Kaiser, et. al., op. cit.). But the tobacco industry is big, and formidable. Area planted in 2017 stood at 31,214 hectares which produced 48.22 million kilograms of tobacco, of which 58.61 million kg valued at $319 million, increasing five percent increase in both volume and value per year.
(Philippine Star June 11, 2018). The Philippines and Indonesia are among the countries with the highest numbers of smokers worldwide, according to a research study which shows 35 percent smokers among Filipino men, a number which remained the same until 2015.
What can the government do, besides doling the placebo of increased “Sin taxes” to save the lungs of smokers (and secondary-smoke foisted on non-smokers)? “Our Department of Health (DOH) estimates that 87,000 Filipinos succumb annually from complications caused by cigarette smoking. In other words, ten Filipinos die every hour from cigarette-smoking related illnesses,” Senator Franklin Drilon said of the Sin Tax Law (inquirer.com March 03, 2014).
Perhaps Pres. Duterte should ban tobacco smoking, and stop tobacco planting and manufacturing for local and for export, instead of over-exerting for War on Drugs. “You are for human rights; I am for human life,” he says.
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.