R aise
Taxes on
Tobacco
Why tax
tobacco?
WHY TAX TOBACCO?
1. To generate
additional
revenue for the
government.
Revenue and Employment in the
Tobacco Industry
• Less than 1% (or 0.42%) of total
employment in the Philippines is employed
in the tobacco industry in 2005
• Government collection of excises taxes
from tobacco in 2003 amounts to Php
19.6B; Php27.3 in 2008
Source: Measuring Employment in the Tobacco Industry, Austria, [Link].
WHY TAX TOBACCO?
2. To promote
public health by
reducing tobacco
use and the
death and
disease it causes.
“The problem with tax increases
is that it does decrease
consumption…”
– Philip Morris
1987 document
Household Expenditures and
Tobacco Use
• 1, 462 cigarette sticks
or 4 cigarettes per day
annual per capita
consumption in 1995
• 1,529 cigarette sticks
or 4.2 cigarette sticks
per day in 2000
Source: Tobacco and Poverty Survey
Household Expenditures and
Tobacco Use
• Php 326.4 monthly cigarette expenditure
in 2009 (678.4 in 2015)
• Php 339.2 monthly cigarette expenditure
of men(2009)
• Php 232.8 monthly expenditure of
women (2009)
Source: Global Adult Tobacco Survey
Household Expenditures and
Tobacco Use
Source: Tobacco
Source: andand
Tobacco Poverty Survey
Poverty Survey
Household Expenditures and
Tobacco Use
Source: Tobacco and Poverty Survey
Burden of Smoking
Source: Tobacco and Poverty Survey
WHY TAX TOBACCO?
3. To address
market failures
in tobacco
product
markets
WHO-FCTC
Production Cost
Household Expenditures and
Tobacco Use
1/3 of Filipinos are considered poor or did
not earn enough money to satisfy the
minimum cost of basic necessities
(Source: Tobacco and Poverty Survey)
TYPES OF TOBACCO TAXES
Import
Excise Tax Sales Tax
Duties
Ad
Specific VAT Tariff
Valorem
“In the Philippines we have successfully delayed
the passage of national legislation and more
recently local legislation. PM is also lobbying for
tax reform to stop discrimination of foreign-
owned trademarks and move to a specific tax
structure”
– Philip Morris 1989 document
“Of all the concerns, there is one – taxation –
that alarms us the most. While marketing
restrictions and public and passive smoking
(restrictions) do depress volume, in our
experience taxation depresses it much more
severely.”
1985 Philip Morris document
WWHAT IS THE SIN TAX LAW?
• RA 10351 or the SIN TAX LAW corrects the
flaws of the previous tax regime (under RA
9334) on alcohol & tobacco products.
• Specifically, it aims to significantly raise the
excise tax rates on these products to curb
smoking & excessive drinking, & generate
add’l funds for public services.
TWO-FOLD OBJECTIVE
Health Objective: Discourage consumption
of harmful products such as alcohol &
cigarettes.
Fiscal Objective: Generate additional
resources for the financing of the
Universal Health Care (UHC) Programs.
WHAT ARE THE FLAWS OF THE
PREVIOUS EXCISE TAX REGIME?
I. Very Low Rates on Tobacco & alcohol Products
w/c resulted to:
– Highest smoking prevalence rates in the ASEAN
Pacific Region
– 7 of 10 leading causes of death are smoking
related diseases
– 240 Filipinos die every day from smoking
– Php 188.8 Billion health care cost & productivity
losses (2011)
• Source: Dans, Antonio. “NCD: A Silent Disaster”. Powerpoint Presentation. Senate Ways & Means Committee. August 30,
2012
FLAWS OF PREVIOUS EXCISE TAX
II. Multi-tier Taxation (A system where brands
are grouped into different classifications - i.e.
low, medium, high, & premium – and pay
different tax rates accordingly.)
– Difficult to administer
– Creates incentives for manufacturers to misclassify
brands in order to avoid paying high taxes.
– Also undermines both health & revenue objectives
of excise taxation by encouraging downshifting
among consumers
FLAWS OF PREVIOUS EXCISE TAX
III. Lacks indexation to inflation (An automatic
annual adjustment of the tax rates based on
the level of price increase in a given year.
Hence, if prices increase by 4%, excise tax
rates shall also be automatically increased by
4% .)
– Tobacco has become more affordable relative to
other essential goods (education, health & food)
FLAWS OF PREVIOUS EXCISE TAX
• IV. Price Classification Freeze
– Old brands paid taxes based on their respective
price classification in 1996 w/c remained
unchanged for 16 yrs. Because of this “freeze”,
several brands continued paying low taxes even if
their prices already went up.
– It kept tobacco & alcohol prices low for many
years, leading to health and revenue losses.
The NEW SIN TAX LAW or
RA 10351
Aims to correct the flaws of
the previous tax system
What are the salient features of
the New Sin Tax Law?
• >SIGNIFICANT TAX INCREASE: Effectively
discourage smoking & generate ample
revenue for public services.
– 1st yr of implementation alone:
• Decrease smoking prevalence from 28.7% to 27.06%
• Encourage up to 2.09 M Filipinos to quit smoking
• Save up to 63,000 lives
* Generate additional revenues of Php 33.96 Billion
New Sin Tax Salient Features
>> UNITARY TAXATION: simplifies tax
administration by imposing a uniform rate &
discourages downshifting by reducing the price
gap among brands
> REGULAR ANNUAL TAX INCREASES: by 4% -w/c is
the average PH annual inflation rate-will prevent
increasing tobacco & alcohol affordability in the
future. Also help prevent revenues from being
eroded by inflation.
New Sin Tax Salient Features
REMOVAL OF THE PRICE CLASSIFICATION
FREEZE: All brands will pay taxes based on their
current prices, further increasing tobacco &
alcohol prices.
EARMARKING FOR UHC & ALTERNATIVE
LIVELIHOOD PROGRAMS:
23.43 B – UHC (NHIP & HFEP)
3.51 B – assist tobacco farmers in growing other
crops
AaA CHALLENGE TO EVERY FILIPINO
We have to defend the gains of the law by
preventing any attempts of reversal from
vested interests. Vigilance is the key to
addressing the following challenges:
> ensuring effective use of earmarked funds
> threats of smuggling & tax avoidance
> other strategies of vested interests to
undermine objectives of the law.
How can we help?
> Support tobacco tax reform through
provincial/municipal resolutions .
> Monitor tobacco industry activities and
report to authorities.
> Monitor illegal trade of tobacco products.
Thank
you!