After almost five months of gruelling debates and interpellation on both sides of the Congress, Republic Act No. 10351, commonly known as the Sin Tax Reform Bill, was signed into law late last year by President Benigno Aquino III.
The 15th Philippine Congress had successfully done what its predecessors failed to do: passing into law a sin tax reform bill that has been on the committee level for nearly 16 years.
The new law imposes a higher tax on cigarette and alcohol products in a span of five years (2013-2017) by restructuring the existing excise tax classification system which was based on a net retail price survey done in 1996 thereby incapacitating the industry which preserved the prices of these products among the cheapest in the world.
The government hopes that such additional tax will help generate enough revenue to augment the scarcity of funds in the implementation of the Universal Health Care Program (Kalusugan Pangkalahatan) as well as livelihood programs for tobacco farmers. Furthermore, the law is looked at by DOH as a measure to discourage the people from engaging into such unhealthy vices.
After the first year of implementation, additional revenue of nearly P34B has been estimated. The projected revenues for the succeeding years are as follows:
· 2013 – P33.96 billion
· 2014 – P42.86 billion
· 2015 – P50.63 billion
· 2016 – P56.86 billion
· 2017 – P64.18 billion
The incremental sin tax revenues will be allocated accordingly for health care services (85%) and tobacco farmers’ livelihood (15%) as the law states:
-After deducting the allocations under Republic Act Nos. 7171 and 8240, eighty percent (80%) of the remaining balance of the incremental revenue derived from this Act shall be allocated for the universal health care under the National Health Insurance Program, the attainment of the millennium development goals and health awareness programs; and
-Twenty percent (20%) shall be allocated nationwide, based on political and district subdivisions, for medical assistance and health enhancement facilities program, the annual requirements of which shall be determined by the Department of Health (DOH).
RA 7171 (An Act to Promote the Development of the Farmers in the Virginia Tobacco-producing Provinces) provides that Virginia tobacco-producing provinces will receive 15% of the collections from excise taxes on the said products.
RA 8240 (An Act Amending Sections 138, 140 & 142 of the National Internal Revenue Code), on one hand, provides that provinces producing burley and tobacco products will have a 15% share of the additional revenue collected from the excise tax on tobacco products.
Tobacco farmers, cigarettefactory workers and vendors rallied their protest against the law during the amendment days. The protesters claimed that the law, still a bill then, will mark the end of the tobacco industry in the country.
With the already minimal salary they receive from the tobacco companies, the factory workers fear the likelihood of receiving a lower salary and/or displacement from work months to years after the initial execution of the law.
In contradiction, proponents of the law emphasized that the aforementioned laws offer the farmers and workers assurance that they, in part, will benefit too from the law through economically viable alternatives.
These ‘economically viable alternatives’ include support programs for tobacco farmers who will shift to production of products other than tobacco, livelihood programs and projects for tobacco-growing provinces, infrastructure projects, and agroindustrial projects which shall involve tobacco farmers in the management and ownership of such projects.
In the event that the companies need to displace these workers, Section 9 of the law states that a “special financial support for displaced workers in the alcohol and tobacco industries shall be allocated and included in the appropriations under the Department of Labor and Employment (DOLE) to finance unemployment alleviation program; and to the Technical Education and Skills Development Authority (TESDA) to finance the training and retooling programs of displaced workers, to be included in the General Appropriations Acts for the Fiscal Years 2014 to 2017”
Universal Health Care
With an estimated 17.3 million smokers, the Philippines is said to be the country with the most number of smokers in the Southeast Asian region. According to the DOH (2012), Filipino smokers consume an average of 1,073 sticks annually whereas other smokers in the region puff less than one thousand each year.
Smoking is well-thought out to be a major causative factor in many diseases like cancer. Cancer was attributed to cause the 11% of total deaths in the country in 2008.
Aside from cancer, smokingrelated conditions that cause mortality include heart attack, stroke and chronic obstructive pulmonary disease.
In a press release last August 2012, Department of Health (DOH) Undersecretary Ted Herbosa said that the government spends a confounding P177 Billion for smoking-related diseases. Moreover, the health official told that the additional revenue from the law’s first year of implementation will not be enough to compensate for the expenses that the government is spending for such cases.
“By taxing tobacco we can generate revenue for universal health care. At the same time, by increasing the price of tobacco to a point where youth and children cannot afford it, we are preventing young people from taking up this deadly habit,” he added.
With the new law, the DOH estimates a 20% reduction of annual mortality due to smoking-related diseases. Furthermore, the department believes that raising the tax would reduce the smoking population into approximately 2 million in 2016.
Critics note a sudden increase of smuggled products on countries with parallel law. Singapore, after a 135% increase in tobacco excise tax, had a 1225% increase in volume of illegally imported cigarettes. Malaysia, on one hand, had a 38% increase of smuggled products from 2004 to 2009.
Studies also show that imposing a high excise tax on such products cause losses in revenue. After 3-7% increase in taxes, United Kingdom lost £45 billion in revenue.
The raise in sin tax, through revenue regulations issued by the Department of Finance, will increase by 4% per annum starting January 1, 2014. Violations of these regulations will be subject to penalties under Title X of the NIRC of 1997.
The law will take effect indefinitely unless amended.# -Reiner Lorenzo Tamayo (with reports from Rappler.com and the Official Gazette)
Note: This is an article submitted to the Vital Signs for publication earlier this year.