PHILIPPINES: Sin Tax Bill

By heyaaaaa
It has been a long battle for the sin tax reform measure which was proposed as early as 1997. For
almost 16 years of deliberation and scrutinization and sometimes set aside, the long-awaited
measure restructuring taxes on tobacco and alcohol products was signed into law by President
Benigno C. Aquino III, late last year as his Christmas gift for millions of people. For weeks, and
months, sin tax bill has been the content of news reports on television, radio and even newspapers.
It acquired a lot of different reactions and views from different groups of people, smokers or not.
Republic Act No. 1035 otherwise known as the sin tax reform bill achieves to lessen cases of people
putting their health at stake by having additional tax collection to bad vices such as cigarette and
liquors. The prices will continue to increase each passing year as per evaluation. Furthermore the
proponents said that it will give large amount of profit to the country and that a large part of the
revenues that will be collected would go to the governments health care program and for the
construction and upgrade of local and major hospitals nationwide.
According to the studies in the Cigarette Pricing System, currently, Singapore charge the highest tax
in cigarette and the Philippines charge the lowest while the industry collects billions from the users
as compared to the other countries in the world. But even with the increase in prices of cigarettes,
Malacanang reports that the prices of cigarettes in the country are still low compared to the prices
among other Asian countries where prices of tobacco products can rage up to P50 per pack.
Department of Health says that the country (Philippines) has 17.3 million estimated tobacco
consumers where Filipinos on average consume 1, 073 cigarette sticks in a year and one reason
that have been seen is the cheap price. The department also pointed out that smoking cause 71% of
lung cancer deaths in the world, which is the leading form of cancer in the Philippines too. In
addition, DOH said that 10 Filipinos die every hour due to smoking.
The National Youth Commission (NYC), along with other survey companies released results that
predict that the number of young smokers decrease consumption once cigarette prices increase,
along with the decrease of cigarette consumption per day by smokers. The law is also considered a
tool that would discourage smoking.
Unlike smoking, drinking alcohol has less severe effects to human health and as per the health
department; an increase in the price of cigarettes may also reduce the number of smoking-related
deaths due to the decrease in the number of smokers in the next four years upon the
implementation.
The sin tax bill may be very effective when we talk about health-wise for it avoids cases of lung
cancer and what nots but it might also cause to the death of the tobacco farming industry in the
Philippines because unlike other countries, the Philippines has not conducted any strategies on
where to divert the possible decrease in the market of the cigarettes. Big companies engaged in this
business could kill their industry and lose the job of dozens of tobacco farmers. Increasing the

tobacco price might make users decide to quit it which will lead to the sudden death of the firms
offering the said products.
And another side of this bill is actually trying to maximize the potential revenue sources for the
benefit of the entire community and sustain the continuous growth of the countrys economy. But the
gain of the government might not be met due to the sudden death of the industry which may as well
result to the loss of jobs and livelihood to others.
When we talk about general welfare, we need to consider the health of the people, however, we
need to reconsider the economy and the industry to where we are moving at. The taxes may really
increase for the next coming years upon implementation of the law and the health-related death due
to smoking may as well decrease, but how about the jobs that may be affected? It may be so easy to
look for another job but as the popular quotation goes, better said than done.
We may never know if people would actually lessen their intake of these vices, because once
theyre addicted theyll always find a way to get what they want. Also we may never know if the taxes
collected by the government would actually go to our health care or maybe be put right away in their
endless pockets.
We may see cons with every pros that we have, but at the end of the day, it would then depend on
its implementation, shares, monitoring of where the money goes. In the long run, we may never
know if a sudden miracle happens and this law would actually work. For the mean time, we should at
least trust the government on its aim of protecting the health of our people and at the same time
increasing our revenue. Whatever may be the effect of the actions we have nowadays, we just need
to hope for the best not just for our country but also for the next generation.

Sin tax reform: Making the

grade
The role of Congress and now the Senate is to sort through the rhetoric and
weigh the sides in light of what is in the best interests of the nation
James M Lafferty
Published 10:27 AM, June 13, 2012
Updated 7:52 PM, June 13, 2012

Through the congressional phase of the sin tax reform debate, it has been clear
the proponents on both sides have zeroed in on various specificities to bolster

their case. The role of Congress and now the Senate is to sort through the
rhetoric and weigh the sides in light of what is in the best interests of the nation.
After all, nothing in life is 100% good or 100% bad And there are pros and
cons to each side.
In an attempt to take a holistic view of reform, this provides a grade a winning
side for each of the 5 key areas of debate regarding sin tax reform.

1. Finances. The Department of Finance calculation of incremental revenues

from reform estimates P30 billion total and this assumes a quite large
reduction of various segments of the cigarette market of nearly -50% which
is quite a conservative assumption. This is versus only several billion
incremental pesos under the various status quo excise proposals. And
reform also abolishes the artificial classification freeze that has deprived
the Philippines of at least P200 billion in lost revenues over the past years.
The winner is clear: REFORM.

2. Health. This is a no-brainer. The more expensive "sin products are, the
less they are consumed. And thats a plus for health. Plus the incremental
revenues of reform shall be partially allocated to funding national health
care plan. Easy call. Winner: REFORM.

3. Level playing field. Free market competition stimulates economies and

investment. The existing excise system has, what can only be termed a
bizarre provision, that gives preferential treatment to pre-1997 brands,
giving them permanent classification and allowing their 1996 prices to be
the base for taxation regardless of where inflation price increases take
them. This has resulted in a monopoly dominating 94% of the market, and
little success for any new entries. Despite the status quo side harping on

the fact that 26 new brands have entered the market since 1996, what
they conveniently fail to mention is these brands have collectively failed.
They have garnered less than 2% of the total market because they pay
higher excise taxes. By simplifying the tiering and abolishing the 1996
annex, a new brand or company can effectively enter and hence drive
competitiveness and investment. Winner: REFORM.

4. Smuggling. There are two types. The first is smuggling current leader
brands from neighboring countries in which the landed price allows one to
undercut local pricing. This is the most predominant form of smuggling
involving cigarettes in particular. This is so because brand loyalty is high
and consumers are not always open to new brands and hence new tastes.
Even after reform, Philippines will still remain among the lowest priced
cigarettes in the region, and therefore the smuggling risks on existing
brands remains low. The second form of smuggling is bringing in new
brands, normally cheap brands of low quality. It is likely there will be an
increased influx of some of these brands behind higher local prices,
although traction among consumers is highly questionable as the category
demonstrates high loyalty to particular brands and tastes. And one can
rightfully argue that smuggling is not something to be fixed via tax policy
but via effective actions in the Bureau of Customs. Regardless, it is hard to
argue against some small level of smuggling increasing as taxes rise.
Winner: STATUS QUO.

5. Tobacco Farmers. This is a complex subject. On the one hand, local

tobacco grades are indeed of lower quality and hence used as filler for
lower tier blends. So yes there may be SOME contraction in local market
sales behind drastically higher prices. However, status quo proponents fail
to mention that nearly 60% of local tobacco is already exported, a figure
that will remain untouched regardless of local excise rates. Thus, the claim
This will decimate the local tobacco farmers is a massive exaggeration.

On top of this, while there are indeed multiple tobacco leaf processors
such as Universal Leaf, the ultimate customer is the cigarette companies
like Philip Morris Fortune, Japan Tobacco, and British American Tobacco.
For this remaining 40% of local volume, getting more ultimate consumers
into the market would far than overcome some contraction behind higher
taxes. Winner: REFORM.

Overall, when one puts it all together, indeed nothing is perfect. No option ever is.
But it is clear the current bill is an overall win for the Philippines. Lets just hope
the Senate continues the reform-minded, visionary, and courageous thinking.

Pros & Cons of Sin Taxes

by Gregory Hamel, Demand Media
The U.S. government taxes a wide variety of economic activities but certain unhealthy activities or
products sometimes face additional taxes. "Sin taxes" are taxes imposed on products or services
that are viewed as unnecessary, detrimental to health or morally harmful. The two most common
examples of products that face sin taxes are tobacco and alcohol. Sin taxes have several potential
advantages and disadvantages.

Discouraging Harmful Behavior

One of the main purported benefits of sin taxes is that they tend to reduce harmful behaviors. For
instance, tobacco use is associated with various health problems such as cancer and heart disease.
Imposing high taxes on cigarettes reduces the amount of tobacco consumers can afford, which may
in turn reduce the overall negative health impacts of smoking. Other activities with known negative
health effects that are taxed include drinking alcohol and using tanning beds.

Increasing Tax Revenue

Another benefit of sin taxes is that they can provide additional tax revenue to the government
bodies that impose them. According to the New York Times, 22 states increased their tobacco taxes
between January 2009 and April 2010 to bring in more tax revenue. Certain states like California are
considering legalizing marijuana as a way to bring in more sin tax revenue. According to Reuters,
"the U.S. federal government collected $20.6 billion in taxes on alcohol, tobacco, firearms and
ammunition in fiscal year 2009."

Economic Activity
Sin taxes can potentially result in reduced economic activity which could reduce the amount of tax
revenue they generate. If a gas station has to charge $1 more per pack of cigarettes, they will sell
fewer cigarettes and make less profit overall as a result. This can hurt businesses that rely on the
sale of products like alcohol and tobacco. If a consumer pays $100 a month due to sin taxes, that is
$100 less that he can spend on other goods and services.

Effectiveness
While discouraging harmful behavior is often cited as one of the aims of sin taxes, it is dubious
whether sin taxes are actually effective at discouraging harmful behavior. According to the New York
Times, "economists doubt that sin taxes greatly affect the behavior of most Americans." Products
such as tobacco and soda are often viewed as basic necessities so consumers continue to buy
them, despite incremental increases in cost due to taxes.