July 1, 2019

New Bill in the Philippines Passed to Increase Tobacco Taxes is a True ‘Win-Win’

In 2012, the Philippines enacted one of the most significant tobacco tax reforms in history. The Sin Tax Reform Act (STL) reformed the tobacco excise tax system by replacing its four-tier system of taxation with a uniform specific tax on all cigarette brands of 30 PHP per pack by 2017. This meant that the previous tax rates of 2.72 PHP per pack of cigarettes on low- and medium-priced brands and 12 pesos on premium brands all shifted to 30 PHP—amounting to more than a 1000% tax increase on the cheapest brands.

The impacts of the STL are significant—

  • Total cigarette pack sales dropped by 32.5% in the first two years.
  • Smoking prevalence declined substantially from 28.3% in 2009 to 22.7% in 2015.
  • Government revenue nearly tripled, from 32.9 billion PHP in 2009 to 106 billion PHP in 2016.
  • Due to earmarking, the national health budget more than doubled, resulting in 8 million more low-income families receiving healthcare coverage under the National Health Insurance Program.

Globally, the Philippines has one of the highest adult and youth smoking rates. According to the 2015 Global Adult Tobacco Survey, nearly 23.8% of all Filipino adults use some form of tobacco; specifically, 22.7% smoke cigarettes, with 18.7% being daily smokers. Additionally, youth tobacco use is a significant problem in the country, as 16% reported using tobacco in some form.

Tobacco use is directly attributable to about 117,000 deaths in the country from tobacco-related diseases, such as lung cancer and cardiovascular disease, to name a few. The costs of treating tobacco-related diseases in the Philippines have been as much as 44.6 billion PHP (858 million USD), which has also led to a loss in productivity of nearly 270 billion PHP (5.2 billion USD).

To address these alarming losses, the government has made dedicated efforts to implement tobacco tax policies in accordance with the Framework Convention on Tobacco Control (FCTC) Article 6, which endorses taxation as an effective strategy to reduce tobacco consumption.

Based on the success of the STL, efforts to continue to raise tobacco taxes have gained momentum. On 4 June 2019, the Senate passed Bill No. 2233, which will incrementally raise excise taxes on cigarettes each year starting in 2020 from the current 35 PHP per pack to reach 60 PHP per back by 2023, and increase the tax by 5% each subsequent year.

The bill has a few additional components that are important to highlight:

  • Excise taxes on heated tobacco products and vapor products have been introduced for the first time in this bill. Although they are relatively low, they are a step in the right direction.
  • Tax administration loopholes will be plugged—minimum prices will be set above taxation levels and penalties for non-compliance will be increased
  • Earmarking formulas for health-related purposes have been changed—now half of all tobacco tax revenues will be devoted to health, and allocations for tobacco-growing providences will be capped.

The Philippines’ representative to the World Health Organization (WHO), Gundo Welle, along with the national Department of Health and Finance say that raising taxes on cigarettes will be a “win-win” for three primary reasons:

  1. The tax increase to 60 PHP per pack has the potential to save 460,000 lives.
  2. Healthcare costs due to tobacco-related diseases, especially for the poor, can be avoided or reduced.
  3. Revenue generated from the bill will be earmarked to help fill the 62 billion PHP gap required to fund the Universal Healthcare Act.

President Rodrigo Duterte is expected to sign the bill within thirty days.

As many global studies have shown, large tax increases are required in order to have a significant impact on tobacco use. Congrats to the Philippines for this important advancement in using taxation as an effective tool to reduce smoking prevalence and raise revenues for healthcare!

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