The Sin Tax Reform Bill

THE SIN TAX REFORM BILL
A Public Health and Revenue Imperative
Department of Health Department of Finance Presidential Communications Development and Strategic Planning Ofce
Thursday, August 16, 12
The State Protects and Promotes Health

The State shall protect and promote the right to health of the people and instill health consciousness among them. [1987 Constitution, Art II, Sec 15] The State shall adopt measures which may include tax/price policies on tobacco products so as to reduce tobacco consumption. [Framework Convention on Tobacco Control, Art 6, provision 2 (a)] Citizens have a right to breathe clean air. [RA 8749, Sec 4(a)] The State intends to protect the youth from being initiated to cigarette smoking and tobacco use by prohibiting the sale of tobacco products to minors. [RA 9211, Sec. 3(e)]
Common risk factors for lifestyle diseases

EPIDEMIOLOGIC TRANSITION
Lifestyle/NCDs
Mortality
Infectious Disease
Development
Source: Omran et al 1970
Tobacco use is a risk factor for 6 of the 8 leading causes of death in the world
TOTAL DEATHS: 5,395
8,000
885
6,000
885 466 154 952
466
4,000
1,253 6704 5280
154 1253
3532 1761 2138 1682 Diarrheal 0 Diseases
141
1,544 Others
2,000
141
1270 Tuberculosis
952
338
Trachea, bronchus, lung cancers
Ischemic Heart Disease
Cerebrovascular disease
Lower Respiratory infections
Chronic Obstructive pulmonary disease
HIV/AIDS 0
Included in Top 10 Causes of Mortality in the Philippines for 2010 Adapted from WHO Report on the Global Tobacco Epidemic (2008)
THE PHILIPPINES: TOP SMOKING COUNTRY IN SOUTH EAST ASIA
The Situation
PHILIPPINES: TOP SMOKING COUNTRY IN SOUTH EAST ASIA

Current smoking of any tobacco products (1) Current smoking of any tobacco products (2) Boys Girls
Countries
Men Women
Per capita cigarette consumption in 2007 (3)
Philippines
Indonesia Vietnam Malaysia Thailand Lao PDR Cambodia Singapore Myanmar
53
62 44 53 43 64 49 36 43
12
5 2 3 2 15 7 6 15
28.3
24.1 6.5 40.0 21.7 7.8 7.2 10.5 22.5
17.5
4.0 1.5 11.5 8.4 3.9 3.0 7.5 8.2
1073
974 887 646 634 544 447 406 209
On average, every Filipino smoker consumes 1,073 sticks every year

Sources: 1. MPOWER report (World Health Organization, 2009). Adult smoking data are age-standardized estimates in 2006. 2. MPOWER report (World Health Organization, 2009). The smoking estimates boys and girls were derived from the Global Youth Tobacco Survey (GYTS). 3. World Cigarettes 1: The 2007 Report. ERC Statistics Intl Pic (ERC, 2007). Per capita consumption is calculated from the total cigarette consumption in 2007 over the total population (http://esa.un.org/unpp)
The Situation
PHILIPPINES: YOUNG SMOKERS
Of the users of tobacco products:

(highest in South East Asia)
17.5%
Girls
28.3%
Boys
SOURCE: WHO Report on global tobacco epidemic:Implementing smoke free environment.Geneva,Switzerland.WHO, 2009
The poor suffer the most

The poor smoke more than the rich. In ASEAN, the lowest quintile of the population suffer more deaths due to smoking.
60 45 30 15 0
Prevalence (%)
Malaysia Q1 Poorest
Philippines Q2
Vietnam Q3
Laos Q4
Myanmar Q5 Wealthiest
From DANS, ET. AL, LANCET 2010
Estimated deaths from heart attack and stroke (all risk factors)
Smoking is the #1 preventable risk factor.
Risk Factor Smoking Cholesterol Obesity HPN Diabetes Heart Attack Deaths 19,315 8,799 14,840 15,559 3,326 CVD Deaths 29,184 4,053 20,207 25,401 6,864 Total Deaths 48,499 12,852 35,047 40,960 10,190
Smoking does NOT just cause cancer and lung diseases, it is also the number 1 cause of stroke and heart attack (~50,000 deaths per year). In fact it causes more stroke and heart a than diabetes, hypertension, obesity and high cholesterol - National Nutrition and Health Survey, 2008
ANNUAL COST OF SMOKING TO ECONOMY

Updated Economic Burden of Health Impact of Smoking in the Philippines for 2011
Lung Cancer Health Care Costs Productivity Losses Premature Death Losses Total
Chronic Obstructive Coronary Artery Pulmonary Disease Disease 14,7 billion 59.5 billion
Cardiovascular Disease
63.4 billion
1.8 billion
11.2 million
146.6 million
847.4 million
929.4 million
4.7 billion
10.1 billion
11.4 billion
9.6 billion
P6.5 billion
P24.9 billion
P71.8 billion
P74 billion
ALL SMOKING-RELATED DISEASE BURDEN: 177 Billion Pesos

From DANS, ET. AL, LANCET 2011
CASE STUDY: THAILAND

Excise Tax Rate, Excise Revenue and Smoking Prevalence, Thailand 1991-2007
50,000.00 45,000.00 40,000.00 35,000.00 30,000.00
% 90 80 70 60 50 40 30 20 10 1994 1996 1998 2000 2002 2003 2004 2005 2006 2007 0
Excise Revenue (in million baht) 25,000.00

20,000.00 15,000.00 10,000.00 5,000.00 0
1992
Excise Rate
Excise Revenue
Smoking Rate
Source: Levy DT, Benjakul S, Ross H, Ritthipkhakdee B. The role of tobacco control policies in reducing smoking and deaths in a middle income nation: results from the Thailand SimSmoke simulation model. Tob Control. 2008: 17(1):53-9.
PROJECTIONS (IN 10 YEARS)

Projected Reduction in Smoking Prevalence and Deaths Averted in the First Year of Excise Tax Increase
35! 30! 25! 450000! 400000! 350000! 300000! 250000! 200000! 150000! 100000! 50000! 0! 0! 5! 10! 15! 20! 25! 30! 35! 40!
Smoking 20! prevalence (%)

15! 10! 5! 0!
Deaths averted in 10 years
Annual % Increase in Excise Tax!
Derived from a simulation model to predict the scal and public health impact of a change in cigarette taxes by Van Walbeek et al BMJ Tobacco Control 2006
ALCOHOL
Consumption Levels in grams per day
Men Responsible Hazardous Harmful <40 40-60 >60
Women <20 20-40 >40
Source: English and Holman,1995

THERE IS MODERATE DRINKING BUT THERE IS NO MODERATE SMOKING

1.60 1.33 1.07 0.80 0.53 0.27 0 None 0.0-0.9 1.0-1.9 2.0-2.9 3.0-3.9 4.0-4.9 5.0-5.9 6.0+ alcohol (F) alcohol (M) 1.0
Source: English and Holman,1995

THE ECONOMICS OF SMOKING
The costs of smoking greatly outweigh the revenues from tobacco taxes
Excise Tax in Tobacco vs. Economic Costs of Smoking
(in Billion Pesos) 200 171 143 114 86 57 29 0
16.8 16.5 17.4 19.4 20.1 20.0 23.1 23.7 26.8 23.2 27.6 24.2 31.7 26.0
Economic costs of smoking of Php177 Billion
Low tobacco prices = High public health costs
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Tobacco Products
Source: BIR and DANS, ET. AL, LANCET 2010)
Philippines is one of the countries with the cheapest cigarettes in the world
Singapore Vanuatu Australia Tonga New Zealand Malaysia Samoa Japan Brunei Darusalam Vietnam Mongolia Lao PDR China Philippines Price in USD
10
11
12
Cheapest Brand
Most Sold Brand

Source: WHO
Philippines also has one of the lowest excise tax rates in the world
in USD
Egypt
Poland
Turkey
Thailand
Ukraine Bangladesh Philippines
Mexico
Pakistan
Indonesia
Vietnam
India
Brazil
China
Russia
Retail Price
Excise Tax
Source: WHO
First: Because of the price classication freeze, cigarettes are cheaper than they should be.
If no price If no price Price Class Average class Excise tax class xed by Net Retail freeze, net paid per freeze, law (Sec. Price as of price pack as of excise tax 145) Dec 2010 should be 2010 per pack should be NRP < 5 LOW 5 NRP 6.50 MEDIUM 6.50 NRP 10 HIGH P9.49 6.50 NRP 10 HIGH NRP > 10 PREMIUM P2.47 since LOW P7.14 since MEDIUM P11.43
3 most sold brands
Tax variance per pack
Brand A
P8.96
Brand B
P17.95
P27.16
P20.02
Brand C
P14.78
NRP > 10 P11.43 since PREMIUM HIGH
P27.16
P15.73
Source: BIR
Second: Non-indexation makes cigarettes more affordable over time, to the detriment of public health objectives.
AFFORDABILITY INDEX - CIGARETTES CY 2000-2011
1.20 !
1.00 !
0.80 !
0.60 !
0.40 !
0.20 !
- !
2000!
2001!
2002!
2003!
2004!
2005!
2006!
2007!
2008!
2009!
2010!
2011!
index low (base year 2000)!
index medium (base year 2000)!
index high (base year 2000)!
Source: NSO and NSCB

Third: Multi-tiered structure allows smokers to downshift to lower-priced cigarettes.

100% 80% 60%
Share to total volume
40% 20% 0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Low-priced
Middle-priced
High-priced
Source: BIR
RESULTING IN FOREGONE REVENUES

which could have been spent on healthcare services such as:
Premium subsidy to 8M indigent families in PhilHealth
203,125 RN Heals nurses
Php19.5 B due to downshifting in cigarettes Inuenza and (2006-2010) Pneumonia vaccine

to 11M senior citizens Various vaccines to 9M children
Rotavirus vaccine to 29M children
First: Because of the price classication freeze, beer is cheaper than it should be
If no price Price Class Average Excise tax class xed by Net Retail paid per freeze, net law (Sec. Price as of liter as of price 145) Dec 2010 2010 should be NRP < 14.5 LOW 14.50 22.00 MEDIUM NRP 14.50 LOW P48.06 NRP > 22 HIGH NRP > 22 HIGH NRP > 22 HIGH P9.65 since LOW P14.35 since MEDIUM P9.65 since LOW If no price class freeze, excise tax per liter should be P19.05
3 most sold brands
Tax variance per liter
Brand A
P9.40
Brand B
P45.47
P19.05
P4.70
Brand C
P28.74
P19.05
P9.40
Source: BIR
Second: Non-indexation has made alcohol products more affordable relative to their 2000 prices
AFFORDABILITY INDEX - ALCOHOL CY 2000-2011
1.20 !
1.00 !
0.80 !
0.60 !
0.40 !
0.20 !
- !
2000!
2001!
2002!
2003!
2004!
2005!
2006!
2007!
2008!
2009!
2010!
2011!
San Miguel Pale Pilsen, 320 ml bottle!
Beer Brand A
Ginebra San Miguel, 350 ml bottle!
Gin Brand B
Tanduay 5 Years, 375 ml bottle !
Rhum Brand C
Tanduay ESQ, 375 ml bottle!
Rhum Brand D
Source: NSO and NSCB

Third: Multi-tiered structure also fosters downshifting of consumption to lower-priced beer products
100%
75%
50%
Share to total volume
25%
0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Low-priced
Middle-priced
High-priced
Source: BIR
RESULTING IN FOREGONE REVENUES

which could have been spent on healthcare services such as:
Premium subsidy to 5.4M indigent families in PhilHealth
134,375 RN Heals nurses
Inuenza and Pneumonia vaccine to 7.5M senior citizens
Php12.9B due to downshifting in beer (2006-2010)
Rotavirus vaccine to 19.2M children
Various vaccines to 6.2M children
With respect to distilled spirits, WTO compliance is a must

Current System
Taxation based on raw material content. A. Produced from sap of nipa, coconut, cassava, camote, or buri palm or from juice, syrup or sugar of cane: P 14.68 B. Produced from other raw materials, the tax shall be based on 750ml volume capacity: If NRP less than P 250 - P 158.72 P250 to P 675.00 - P 317.45 More than P 675.00 - P 634.89
House Approved
Original proposal to base taxation on Removed raw materials as a basis for
alcohol content not accepted by Congress. taxation. Taxation (per proof liter) based on 750 ml volume capacity: If NRP less than P 90 - P 20 P90 to P150 - P 80 More than P 150 - P 320
8% increase in tax rates every two years

effective Jan. 1, 2015 up to Jan. 1, 2025.
Reclassication every two years.

ESTIMATED INCREMENTAL REVENUES UNDER HOUSE APPROVED BILL

(In Billion Pesos) Year 2013 2014 2015 2016 Cigarettes 26.87 34.72 36.27 35.38 Distilled Spirits 1.45 1.78 2.62 3.03 Fermented Liquor 3.03 2.52 3.79 3.10 Total 31.35 39.02 42.68 41.51
Source: BIR

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The Sin Tax Reform Bill

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THE SIN TAX REFORM BILL

A Public Health and Revenue Imperative

Thursday, August 16, 12

The State Protects and Promotes Health

Thursday, August 16, 12

Common risk factors for lifestyle diseases

885 466 154 952

1,253 6704 5280

Ischemic Heart Disease

Lower Respiratory infections

Chronic Obstructive pulmonary disease

THE PHILIPPINES: TOP SMOKING COUNTRY IN SOUTH EAST ASIA

Thursday, August 16, 12

PHILIPPINES: TOP SMOKING COUNTRY IN SOUTH EAST ASIA

Per capita cigarette consumption in 2007 (3)

On average, every Filipino smoker consumes 1,073 sticks every year

PHILIPPINES: YOUNG SMOKERS

Of the users of tobacco products:

The poor suffer the most

Thursday, August 16, 12

ANNUAL COST OF SMOKING TO ECONOMY

ALL SMOKING-RELATED DISEASE BURDEN: 177 Billion Pesos

CASE STUDY: THAILAND

Excise Revenue (in million baht) 25,000.00

PROJECTIONS (IN 10 YEARS)

Smoking 20! prevalence (%)

Deaths averted in 10 years

Annual % Increase in Excise Tax!

Men Responsible Hazardous Harmful <40 40-60 >60

Women <20 20-40 >40

Source: English and Holman,1995

THERE IS MODERATE DRINKING BUT THERE IS NO MODERATE SMOKING

Source: English and Holman,1995

Thursday, August 16, 12

Thursday, August 16, 12

Thursday, August 16, 12

THE ECONOMICS OF SMOKING

Thursday, August 16, 12

Economic costs of smoking of Php177 Billion

Low tobacco prices = High public health costs

Most Sold Brand

Thursday, August 16, 12

Ukraine Bangladesh Philippines

Thursday, August 16, 12

3 most sold brands

Tax variance per pack

NRP > 10 P11.43 since PREMIUM HIGH

index low (base year 2000)!

index medium (base year 2000)!

index high (base year 2000)!

Source: NSO and NSCB

Third: Multi-tiered structure allows smokers to downshift to lower-priced cigarettes.

Thursday, August 16, 12

RESULTING IN FOREGONE REVENUES

203,125 RN Heals nurses

Php19.5 B due to downshifting in cigarettes Inuenza and (2006-2010) Pneumonia vaccine

Rotavirus vaccine to 29M children

Thursday, August 16, 12

3 most sold brands

Tax variance per liter

San Miguel Pale Pilsen, 320 ml bottle!

Ginebra San Miguel, 350 ml bottle!

Tanduay 5 Years, 375 ml bottle !

Tanduay ESQ, 375 ml bottle!