“ TOBACCO EXCISE TAX

IN THE PHILIPPINES
R: RAISE TAXES ON TOBACCO ”
Action for Economic Reforms
March 8, 2019 MPOWER Training
Clarissa Villegas
Why tobacco tax?
Improve health outcomes

Increase Funds for Universal Health Care

Increase Fund allocation for our farmers

What is the public’s perception on
tobacco tax?

 RESULT: 67% (i.e. 2 out of 3) respondents agree that the

tax on cigarettes should be increased
 RESULT: 64% (i.e. 2 out of 3) respondents agree to
support candidates who are in favor of increasing
tobacco tax
 RELATED ARTICLE: https://www.rappler.com/nation/215978-filipinos-vote-candidate-support-
higher-tobacco-taxes-pulse-asia-survey-september-2018
 Passing the Sin Tax Reform Act of 2012:
A shift from revenue to health

 NCDs on the rise -- and the top preventable risk factor is SMOKING.
 Tobacco control advocacy has been growing in the past decade.
 Growing evidence that increasing tobacco taxes is effective in reducing tobacco
consumption in many countries.
 FCTC ARTICLE 6: “…price and tax measures are an effective and important means of
reducing tobacco consumption by various segments of the population, in particular
young persons.”
 Increasing tobacco taxes and prices is the single most effective way to reduce tobacco
use and save lives (Guindon, Paraje, & Chaloupka, 2015).
 Features of RA 10351:
Significant reforms introduced

Significant Tax Increase Effectively discourages smoking and simultaneously generates

ample revenue for public services

Unitary Tax Rates Discourages downshifting by reducing the price gap among
brands through the implementation of a uniform tax rate

Automatic Annual Increases the tax rate by 4% every year to prevent increasing
Increases cigarette affordability.

Removal of the Price All brands will pay taxes based on their respective current
Classification Freeze prices.

Earmarking for Health and Earmarks incremental revenue for the Universal Health Care
Farmers and Alternative Livelihood Programs
 Features of RA 10351:
Excise tax rates on cigarettes

RA 9334 NRP per pack 2005 2007 2009 2011

<P5.00 P2.00 P2.23 P2.47 P2.72
P5.00-P6.50 P6.35 P6.74 P7.14 P7.56
>P6.50-P10.00 P10.35 P10.88 P11.43 P12.00
>P10.00 P25.00 P26.06 P27.16 P28.30

RA 10351 NRP per pack 2013 2014 2015 2016 2017 Unitary Tax
Rates
≤P11.50 P12.00 P17.00 P21.00 P25.00 effective by
P30.00
>P11.50 P25.00 P27.00 P28.00 P29.00 2017
 Impact of RA 10351 on Key Indicators:
Average price per stick of cigarettes, 2006 to 2017
(NSO)

RA 10351
3.00 2.69 2.80
In pesos

2.52 2.65 2.65

2.50
2.00 1.67 1.65 1.76
1.48 1.54 1.59 1.49
1.35 1.39 1.43 1.38
1.50 1.30 Fortune
Marlboro
1.00 0.73 0.81
0.57 0.58 0.61 0.65 0.67
0.50
0.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Future Potential for Strengthening RA 10351:
Our goal for 2017 was…

SIGNIFICANT TAX INCREASE

If we don’t increase the
tobacco tax, there will be
200,000 new smokers every
year starting 2018, or 1 million
new smokers by 2022.

On the other hand, increasing

the excise tax by at least 60%
in 2018 followed by 9% annual
increases will lead to 1 million
less smokers by 2022.
 Impact of RA 10351 on Key Indicators:
Prevalence of Never, Current, and Former Smokers
(NNS, 1998 to 2015)
RA 10351
% 70 63.7 At least 70,000
59.1
60 54.5 55 54.3 deaths averted
since 2013.
50
40 32.7 34.8 The decrease in
31
25.4 smoking
30 23.3 prevalence is
20 12.8 14.7 15.5 13 mainly due to
10.2
10 prevention of
would-be
0 smokers.
1998 2003 2008 2013 2015
Former Smoker Current Smoker Never Smoker
Impact of RA 10351 on Key Indicators:
Prevalence of Current Smokers by Income Quintile
(NNS, 2008, 2013 and 2015)
Prevalence (%)
Difference (2008 to 2015)
50.0
26% 28% 22% 18% 28%
45.0
40.0
39.9
35.0 36.4

30.0 33.1
29.7 29.7 2008
25.0 28.0
26.3 26.0 25.3 24.8 2013
20.0 23.2 23.2
20.6 2015
15.0 18.0 17.7

10.0
5.0
0.0
Poorest Poor Middle Rich Richest
Impact of RA 10351 on Key Indicators:
Prevalence of Current Smokers <20 years old
(NNS, 2008, 2013 and 2015)
Prevalence (%)
50.0

40.0

3.6% difference only, but this represents a 40% reduction

30.0
(the biggest in any age group)

20.0

9.1
10.0 6.9 5.5

0.0
2008 2013 2015
 Impact of RA 10351 on Key Indicators:
Excise tax revenue, 1988 to 2015
(in constant 2010 prices)
90 RA 10351
In billion pesos

85.18
80 RA 9334
70 RA 8240
60
50
40 30.46 35.60
30
20
22.13
10
0
1999

2010
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

2011
2012
2013
2014
2015
Tobacco Alcohol
Impact of RA 10351 on Key Indicators:
Health budget, 1992 to 2016 (in billion pesos)
RA 10351 122.73 122.73

42.08
42.08
 Impact of RA 10351 on Key Indicators:
Health budget, 1992 to 2016 (in billion pesos)

Distribution of sin tax incremental revenue for health,

P69.4 Billion for 2016
Doctors to the barrios 4.16
Program, Project, Activity

Health enhancement facilities program (HEFP) 5.86

Medical assistance to poor patients; medicine to local health… 3.73
Health facilities enhancement program (capital outlay) 7.45
Health awareness programs 0.04
Health policy, regulations, and administration of personnel… 7.56
Quick response fund 0.51
Hospital operations 5.58
Attainment of MDGs 3.25
PhilHealth premiums of poor families 31.26
0 5 10 15 20 25 30 35
Billion PhP
Impact of RA 10351 on Key Indicators:
Number of PhilHealth Beneficiaries Subsidized by
the National Government, 2012 to 2015
60
In millions

52.52
50 43.73
40

30
20.43 21.01
20

10

0
2012 2013 2014 2015
Butwait, if we’re increasing
taxes and reducing
consumption, how can we
raise revenue?
Impact of RA 10351 on Key Indicators:
Raising revenues and reducing smoking
prevalence, how is it possible that we can do both?

Because
demand for
cigarettes is
INELASTIC.
Impact of RA 10351 on Key Indicators:
Raising revenues and reducing smoking prevalence, how
is it possible that we can do both?

Because
demand for
cigarettes and
alcoholic drinks is
INELASTIC.
Impact of RA 10351 on Key Indicators:
Raising revenues and reducing smoking prevalence, how
is it possible that we can do both?

Because
demand for
cigarettes and
alcoholic drinks is
INELASTIC.
Impact of RA 10351 on Key Indicators:
Raising revenues and reducing smoking prevalence, how
is it possible that we can do both?

Because
demand for
cigarettes and
alcoholic drinks is
INELASTIC.
But didn’t we increase taxes under TRAIN?
Why do we still need to increase tobacco tax post-TRAIN?

Tobacco Tax under Tax Reform for Acceleration and Inclusion

(TRAIN) Act of 2017 (RA 10963)
RA 10351 2018 2019 2020 2021 2022 2023 2024
P31.20 P32.45 P33.75 P35.10 P36.50 P37.96 P39.48

RA 10963 2018 2019 2020 2021 2022 2023 2024

P32.50
(1st sem)
P35.00 P37.50 P37.50 P40.00 P40.00 P41.60
P35.00
(2nd sem)
 Future Potential for Strengthening RA 10351:
Room for improvements

International cigarette prices, WHO 2015 (World Bank Report, 2016)

Despite the significant

increases in the prices of
cigarettes in the country,
WHO data show that these
prices are still significantly
lower compared to other
countries around the world.
 Future Potential for Strengthening RA 10351:
Room for improvements

 Affordability of cigarettes
 The stipulated 4% annual increase in the tax rate beginning in 2018 does not take into
account changes in income (whereas, average nominal GDP growth rate for the past
5 years is at 8.7%).
 Philippine smoking prevalence, one of the highest in the ASEAN region
 The Philippines still ranks fourth, next to Indonesia, Lao PDR, and Myanmar among the
ASEAN countries with the highest proportion of smoking population (Tan & Dorotheo,
2016).
 Lowest smoking prevalence in the ASEAN region, so far, is 13%.
 Future Potential for Strengthening
RA 10351: Our goal for 2019…
Health expenditure, by source of funds, 2006-2013
600.00
Billions

Out-of-pocket PhilHealth Government Others

500.00 13.3%
Out-of-pocket
spending is still
12.6%
400.00 11.2% 18.9%
12.0% 19.1% high because
27.0% 11.5%
services
12.7%
300.00 11.5% 26.6% 11.1%
10.9% 24.8%
25.9%
8.9%
9.1% covered by
200.00 PhilHealth are
12.4% 8.1%
26.6%
26.3% 7.1%
56.3%
100.00
8.8% 8.5%
52.7% 57.2% mostly for
53.3% 52.5%
52.3% 54.4% 56.7% inpatient care.
0.00
2006 2007 2008 2009 2010 2011 2012 2013
 Why do we still need to increase tobacco
tax post-TRAIN?

 Gains from the Sin Tax Law of 2012 continue to be felt

Excise Tax Collections (in billion PhP)
140
Excise tax collection
continues to grow from PhP
71.6B in 2013 (a year after
120
the Sin Tax Law was passed)
to PhP 125.9B in 2017.
100
According to the DOF, the
80 incremental revenue
collection for tobacco due
to the increase in TRAIN was
able to collect PhP 5.5B
60

compared to DOF’s target

40
of PhP 1.8B from January to
June 2018.
20

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
 Why do we still need to increase tobacco
tax post-TRAIN?
 Economic Cost of Smoking Health care costs – costs
Economic Burden from the Top 4 Tobacco-Related Diseases (in PhP, 2017)
related to hospitalization due
to the tobacco-related
disease
Productivity losses – cost of
work days lost due to absence
at work because of illness,
including recuperation
Premature death losses –
potential income forgone due
to premature death
Note that the economic cost of
smoking (PhP 210B) is still
larger than the excise tax
Source: Dr. Liberty Fajutrao and Dr. Antonio Dans collection on tobacco (PhP
120B).
 Why do we still need to increase tobacco
tax post-TRAIN?

 Smoking as a gateway to drugs

Tobacco use may be responsible for one-third of ever users of illicit drugs. Of
the 4.8 million ever users of illicit drugs in 2015, smoking may have caused 1.68
million Filipinos to use illicit drugs.
As tobacco use is a potential gateway to illicit drug use, prevention of
tobacco use through higher excise taxes may also be an effective measure to
prevent people from trying and using prohibited drugs.
Rationale for higher tobacco taxes
post-train

 Gains from Sin Tax Law continue to be felt in terms of smokers prevented and
revenues generated
 Rates approved in TRAIN are way below the Pacquiao and Ejercito proposals
 We still expect 1,000,000 more smokers by 2022 (Dans and Diosana model) due
to increasing incomes and population
 UHC will still need additional funding
 Economic Cost of Smoking (Health Care Costs, Productivity Losses, Premature
Deaths Losses, etc) is at PhP 210B in 2015
 Smoking is a gateway to drugs
Efforts
in increasing
tobacco taxes
Objectives

 An increase of NO LESS THAN P60.00 excise tax per pack

 Get Sen. Angara’s commitment to pass the measure this
17th Congress (priority legislative agenda)
 Make tobacco tax an election issue
 Future Potential for Strengthening
RA 10351: Our goal for 2019…
250

The expected additional revenue

200 from TRAIN, equal to P90 billion, is
90 UHC not enough to cover for new
In Billion Php

150 legislated expenditures by the

government (2018).
Sin Tax Rebuilding
50 50 Marawi
100 Proposal
The bills filed by Senators
36 UCT Pacquiao, Gatchalian, Ejercito are
50 TRAIN 1 expected to generate an
90 Revenues
40
Free College
Tuition
additional P50-90 billion that can
augment funds needed for UHC
0 9.7 PUV Modernization
(at P90 billion/year).
Expected Revenues New Expenditure
from Tax Reform Passed in Congress
What is the status of the bills
on tobacco tax?
After a loooong wait…
ANGARA finally released the COMMITTEE REPORT on May 27, 2019
 Future Potential for Strengthening
RA 10351: Our goal for 2019…

 A committee report or SB 2233 is now under the period of

interpellations. It has a PhP 45 rate starting January 2020.
This will lead to 20,000 less smokers by 2022 according to
AER and a PhP 14.8 B increase in revenues in the first year
according to the Dept of Finance (DOF).
 However, this will not lead to a sustainable revenue
source that can FUND the UHC Law and lead to a
significant drop in smoking prevalence.
 Future Potential for Strengthening
RA 10351: Our goal for 2019…

 Continue pushing for higher taxes.

 Push for an effective and cost-efficient utilization of the
Sin Tax funds through reform of the health care system
 The UNIVERSAL HEALTH CARE BILL will require additional funding
of P63 billion for the first year according to DOF.
FUND UHC
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