Philippines: Good and Bad News about Sin Taxes

Source from:  The Philippine Star 10/10/2013

First, the bad news. A recent study released by the sin tax reform advocacy group Action for Economic Reforms (AER) points to new collected data that shows that despite the hiked taxes on tobacco products, consumption is not dropping as expected.

The good piece of news, though, is the fact that the higher imposition of sin taxes implemented at the start of the year has yielded improved revenue collections that will be allocated to upgrade health programs.

In a recent survey conducted, instead of reducing smoking consumption by 5.8 percent, as projected by a study made by the Department of Finance, the average reduction rate had been only four percent, both for urban and rural communities.

On the other hand, the collections to date from the tobacco industry have been higher than expected. The DOF, for that matter, is estimating that collection from cigar and cigarette taxes could be seven percent higher than the estimated target of P33.96 billion this year.

More tax increases

And with more tax increases expected in succeeding years, the target revenue collections from both tobacco and spirits may, aside from bringing in the desired revenues, eventually dampen consumption of the sin products.

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Already, the sales of Philip Morris Fortune Tobacco Corp. (PMFTC), that unholy alliance of the country's two biggest tobacco manufacturers and retailers, has showed some decline, albeit only 3.5 percent, or lower than expected.

Anti-smoking advocates, though, are not disheartened by the weak drop in consumption. The AER, in particular, is looking at over two million current smokers to quit in the near future. Best of all, it sees some 63,000 smoking-related deaths as being prevented.

Current trend shows that even with new increases in sin taxes expected in the next years, the tobacco industry will not collapse as had been painted during the sin tax deliberations last year.

Foiled amendments

In an apparent attempt to again protect the monopolistic domestic tobacco industry, changes in the rules and regulations for the sale and distribution of tobacco products were introduced, but only affecting imported brands.

Public health advocates were reportedly deeply distressed by their discovery of a draft memorandum of the National Tobacco Administration to introduce the damaging amendments to the current regulation.

Good thing the attempt was discovered early and the protectionist and discriminatory act was foiled in time. While the sin tax reform passed into law last year intended to reduce smoking among Filipinos and at the same time increase tax collections, the other objective was to level the playing field in the local environment.

For decades, the local tobacco industry players led by Philip Morris and Fortune Tobacco managed to keep a tight control over the market and were able to obtain tax benefits through previous legislative's protection. And by keeping taxes at ludicrously low levels, cigarette consumption in the Philippines especially by the young, women and low-income citizens just kept on rising.

'Vested interests'

The AER came up with a manifesto protesting the draft circular as an attempt that "masquerades as an illicit trade control measure but only serves to protect the vested interests of the domestic tobacco industry."

In the proposed circular, sellers and distributors of imported tobacco products would be slapped an additional license fee from P100 up to P600, on top of the license fee already imposed, as well as additional evaluation fees.

The NTA claimed that this proposed policy would "prevent smuggling, counterfeiting and illicit trading of imported tobacco products through proper supervision, monitoring and regulation in order to protect the consuming/smoking public."

However, the proposed measures in reality would not help curb smuggling of imported cigarettes, and more importantly, remains silent on the more serious problem of domestic smuggling.

Furthermore, the blatant discrimination against foreign brands could again spark protests similar to what happened in the spirits industry where several foreign brands raised their complaints to the international courts, claiming that the high taxes imposed on imported products violated the country's commitment to international trade rules, specifically the General Agreement on Tariffs and Trade.

Health hazard

Today, millions of Filipinos are dying because of cigarette smoking. Worse, the burden of smoking-related diseases on the public health system is draining precious taxes that could have been used to build schools, roads and other government projects.

While the Philippines still has one of the lowest taxes on sin products, the recently passed law can be considered a landmark achievement because it managed to release the country from the stranglehold of a domestic monopoly. And we hope it stays this way.

Health advocates are also still hoping that the tax increases in the coming years and the continuing information drive on the dangers of smoking may eventually lead to a more substantial drop in cigarette consumption. Enditem