Sin Taxes

House Bill 5727, or the Sin Tax Bill, aims to restructure the existing taxes imposed on alcohol and tobacco goods. Duties on these products are a potential revenue source that will help fund the Universal Health Care Program of the administration. Likewise, higher taxes—and consequently higher costs—are seen as a deterrent to the consumption of “sin” products, whose adverse effects are mostly borne by the poorer segments of society.

Why are we supporting it?

1. To promote health by discouraging vice.

2. To collect more revenue for healthcare.

Health

According to the Department of Health (DOH), the Philippines has an estimated 17.3 million tobacco consumers, the most number of smokers in Southeast Asia. Filipinos on average consume 1, 073 cigarette sticks annually, while the smokers in the region consume less than a thousand sticks yearly. This high consumption rate is seen as a result, among others, of the very low cigarette prices in our country.

Source: Action for Economic Reforms. Published with permission.

Smoking is responsible for 71 percent of lung cancer deaths in the world. Consequently, lung cancer is the leading form of cancer in the Philippines. DOH statistics reveal that 10 Filipinos die every hour because of smoking.

According to the DOH, a 10 percent increase in tobacco taxes will reduce the number of smokers by two million by 2016. A significant decline in the number of smokers will likewise reduce the number of smoking-related deaths.

Meanwhile, drinking alcohol, though effects are relatively less severe health-wise than smoking, has posed a number of costs on the individual and society:

Source: Action for Economic Reforms. Published with permission.

Revenue

The Department of Finance (DOF) has determined the following flaws in the current system of taxing sin products:

  • The current system is still under the Price Classification Freeze, wherein old brands are taxed differently from new ones.
  • The system follows a multi-tiered tax structure that is prone to the downshifting of smokers to cheaper cigarette brands (which does not discourage smoking). For example, based on 1994-2010 statistics provided by the Bureau of Internal Revenue (BIR), it was observed that consumers had downshifted from medium-priced cigarettes (more than 30% consumption in 1994 to less than 20% in 2010) to low-priced cigarettes (less than 40% consumption in 1994 to more than 50% in 2010). This also applied to beers: consumption of low-priced beer ballooned from less than 40% in 1994 to more than 70% in 2010.
  • The lack of price indexation results to declining tax burdens, as tax is eroded by inflation. In effect, the 2004 effective burden tax price has decreased in 2010 ranging from a 1 percent to 9 percent decrease in tax burden (based on BIR 4th quarter survey).
  • The taxation of distilled spirits is non-compliant with World Trade Organization (WTO) rules.

The sin tax proposes the following reforms:

  • Maintain the specific form of excise taxation (e.g., per piece, per pack, per proof liter) to discourage consumption, have more revenues that are predictable and easier to administer, and devoid of incentives for manufacturers and importers with under-invoice products;
  • A shift from a multi-tiered tax structure to a single tax structure: (1) For cigarettes, a two-rate structure of P14 and P30 per pack for the 1st two years, and a uniform rate of P30 per pack of cigarettes on the third year. (2) For fermented liquor, immediate implementation of unified rate of P25/liter. (3) For distilled spirits, a two-year transition period to a unified rate of P150 per proof liter on the third year.
  • Adopt an automatic annual adjustment of tax rates using relevant NSO-established tobacco and alcohol indexes after the third year.
  • A shift from a raw-material criterion to an alcohol-content criterion in taxing distilled spirits.
  • Revenues from sin taxes are to augment the funds of the Aquino administration’s universal health care program.
  • The continued sharing with tobacco farmers of the incremental revenues.

Source: Department of Finance.

Universal Health Care (UHC)

The total cost of universal healthcare (UHC) from 2012 to 2016 will amount to P682.1 billion. The national government’s financing requirement for the next five years amounts to a total of P224.8 billion or a 33 percent share in the UHC cost. Additional revenues to be brought about by the proposed sin tax reform are being viewed as one of the main sources for UHC national government financing.

  • P92.7 billion will account for the national government covering for a 100 percent subsidy for the premium of 5.2 million or the bottom 20 percent of the poorest families.
  • P55.3 billion will account for a 50 percent subsidy for the next 5.6 million of poorest families (the other half will be funded by the local government).
  • P76.8 billion will account for investment subsidies in the health sector.