Yellow Pad
Madeiline Joy L. Aloria

The probe on Ilocos Norte Governor Imee Marcos’s alleged misuse of tobacco funds for projects unaligned with the intended purpose of Republic Act (RA) 7171 to earmark a share of tobacco excise tax for tobacco farmers (e.g. purchase of vehicles worth P66.4 million and cash advances worth P32 million) demands close attention. Setting aside the issue being a political spectacle, we see this as a timely opportunity to assess the earmarking of tobacco tax for the tobacco-growing local government units (LGUs).

Schizophrenic use of tobacco fundsThe 1991 RA 7171 allocates a portion of cigarette excise taxes to support tobacco farmers through post-harvest, secondary processing activities, and infrastructure projects such as farm-to-market roads. This was perhaps a response to the declining volume of production and number of farmers in the 1990s. But one cannot discount the motivation of politicians like Chavit Singson to introduce a hard earmarking that economists deem inefficient: largesse.

Data from the Bureau of Agricultural Statistics, however, show that the downward trend for volume of production and number of farmers continued even with the enactment of RA 7171. Thus, although not directly amending RA 7171, the sin tax law (RA 10351) widened the scope of the use of tobacco funds to also cover support for viable alternative livelihoods.

With farmers still planting tobacco among the poorest in the country even after over 20 years of earmarking — an average total of P4 billion a year, equivalent to over P100,000 per year for each of the estimated 37,000 farmers in the Ilocos region — it is crucial to ask how LGUs, which are in the exact position to uplift farmers’ welfare, have fulfilled (or blocked, contradicted) such duty.

Unfortunately, politicians from tobacco-growing areas are exposed to two forms of corruption: being captured by the tobacco industry and/or misusing tobacco funds for their personal benefit.

The tobacco lobby in the Philippines, the biggest in Asia (Alechnowiz, 2004), desires to capture those politicians who can serve its interests. The lobby resists taxes and tobacco control. The tobacco lobby spreads the propaganda that cigarette tax reforms lead to massive unemployment of tobacco farmers, despite the fact that nine out of 10 of these farmers actually do not depend solely on tobacco but on diversified sources. The main consideration of those who choose to plant tobacco is not any inherent “joy” for tobacco farming, but the presence of loan availability from the tobacco industry, which LGUs however can be of assistance for any crop.

In addition, corrupting the earmarked tobacco funds has become common. The Commission on Audit (CoA) annual reports show that violations on the use of RA 7171 were committed, for instance in 2006, 2007, 2012, and 2013 in Ilocos Sur, and in 2012 in Abra. Although the CoA includes RA 7171 in its annual audit of LGUs, the standards assessing the supposed welfare improvements from the funded programs and projects are lacking. Over 85% of the funds go to easily politicized infrastructure projects like sheds and roads, but how such projects meet criteria on effectiveness and efficiency in improving farmers’ welfare is left unexplained.

Supporting cigarette tax rate increase is in fact a desirable action for politicians. Their LGUs reap billions from taxes levied on final products (cigarettes), despite the fact that around 70% of the local leaf production volume gets exported. In 2015, the value of local non-exported production of tobacco leaves was at P15.6 billion, and the government generated P100 billion in cigarette taxes that year.

In 2012, then senator Bongbong Marcos was caught consulting with a Philip Morris representative during the sin tax deliberations, and he eventually voted “no” to the bill, coating his arguments as a pro-farmer one. Three years after the passage of the law, during the vice-presidential debates, he said that the sin tax law provides no consolation to those who depend on the industry for livelihood despite the fact that the sin tax law allocated a total of P1.3 billion that year to cover the only 8,000 farmers in Ilocos Norte, as estimated by the National Tobacco Administration (NTA). Bongbong Marcos is opposed to the tobacco tax reform, while his sister is being grilled for allegedly misusing the sin tax revenue devoted for farmers he professes to protect.

Opposing cigarette taxes is manipulated by politicians like Bongbong Marcos to look like being pro-farmer. Yet these same politicians do not use the tobacco earmarking to provide farmers genuine livelihood assistance and to uplift their welfare.

By siding with tobacco corporations against cigarette taxes and by corrupting the earmarked funds, some influential politicians from these tobacco-growing areas have exposed themselves as anti-people and anti-tobacco farmer.

To prevent the waste and corruption, the tobacco tax earmarking has to be reformed. Although primarily a health measure enacted to reduce smoking among poor and young Filipinos and to generate revenues for Universal Health Care, the sin tax law also seeks to help assist tobacco farmers for the longer term, in anticipation of reduced tobacco demand. The policy of facilitating farmers’ alternative livelihood still has a long way to go.

Shifting farmers to better livelihood is extremely difficult in a situation where the NTA expectedly perceives the declining trend in tobacco production as a threat to its existence, and where some politicians have become the sponsors of the tobacco industry lobby.

The earmarking of cigarette tax to tobacco-growing LGUs has to be reformed. The RA 7171 automatic earmarking has created a false sense of entitlement to politicians from tobacco-growing LGUs.

We must continue to demand accountability and transparency with respect to how the earmarking for tobacco farmers is being used. The current investigation involving Imee Marcos, although in reality a fight between factions of pro-tobacco politicians, must be seen as an opportunity to subject to scrutiny and punishment all those found guilty of corruption in the use or management of tobacco excise tax funds.

The ongoing investigation must likewise be a stimulus to amend the hard earmarking of tobacco excise tax for tobacco-growing LGUs. By all means, we must provide assistance to our tobacco farmers, but no longer should it be done through automatic and arbitrary earmarking, which politicians have used to perpetuate waste, corruption and patronage politics.

Madeiline Joy J. AlorIa is an economics researcher of Action for Economic Reforms.