The virtues of the Sin Tax Law retold

By Mario M. Galang
The story about the sin tax reform experience has a familiar ring to it: the tale of the universe
conspiring to make a good idea happen. Indeed it happened, and it happened in a hurry.
In the House of Representatives, the proposed measure carried its unique identifier, House Bill
No. 5727, entitled, An act restructuring the excise tax on alcohol and tobacco products. It was
filed on January 25, 2012 and referred on First Reading to the Committee on Ways and Means.
For four quick calendar months the bill was put through the usual mill until the body approved
it on Second Reading, which opened the way straight to the Third on the same session day,
upon which the measure was put to a vote: 210 yeas, 21 nays, with 5 abstentions. Only a
little more than one calendar month was all that the Senate needed to approve its version on
Third Reading, with 15 senators voting in favor, two against, and no abstention.
Both bills bore the stamp of presidential support: they were certified as urgent. Symbolically,
its a clarion call for legislative support, which presupposes a completed spade work so as not to
go unheeded. Or, one that entails an abiding faith on the power of the Golden Rule to persuade.
In the whole scheme of things, the one force in the universe that owns the capacity to do this is
the president. Congress holds the power of the purse, but the Executive enjoys the power to
disburse.
The president, however, was not conspiring solo. The constellation of forces at work included
those from civil society who coalesced around the sin tax reform advocacy. They were there
from the outset playing the background game - pushing the reform item into the front of the
legislative-executive action sequence, building links with the key actors from both branches,
providing staff support to fellow advocates, and such. (Full disclosure: the Action for Economic
Reforms was co-leader of the tacit reform coalition.)
As the coalition snowballed into congress, its ranks had broadened to include the white army
of medical doctors and associations, health organizations, and other professionals. Its strength
reinforced in terms of number and prestige, it joined the game in the open and won with its
allies. The sin tax bill was signed into law and started to take effect on January 1, 2013.
Why do we need the law, in the first place?
Tobacco is what you get when you roll two of lifes certainties, death and taxes, into one.
Tobacco kills close to 88,000 Filipinos every year, or more than 240 every day. Most of them die
of diseases stemming from tobacco use, such as cancers, heart diseases and respiratory diseases.
On top of this are the many more who die from secondhand smoke and the infants, children
and young adults who succumb to illnesses caused by exposure to cigarette smoking.
Disease is an evil that tobacco brings. Because of the tons of conclusive evidence giving truth to
this belief, only tobacconists find this disputable. And we know why: tobacco brings in money
as well, far more as corporate profit than as tax proceeds. That was before the sin tax reform

became a law. Tobacco products were under-taxed and the tax structure lent itself to tax
avoidance and corruption.
Meanwhile, smoking related diseases were incurring costs which government had to provide
for by way of health facilities and services. In 2003, for example, a hefty 45 billion pesos were
spent in treating four major diseases caused by smoking. It was an untenable arrangement that
had to be corrected.
One corrective approach is to use taxation as penance for sin. You raise more money for
public use, but you dont necessarily stop the sinning itself (youre paying your way out of it
instead).
Ingenious is the Sin Tax Law for using an approach that takes taxation as deliverance from
evil. You raise the tax high enough to hike cigarette prices: smoking quit rates should go high
and smoking start rates should go low, most likely among the poor. The scheme rests upon one
economic idea as core assumption: the idea that demand for a particular good responds to
changes in its price, and the response is measurable.
So far the scheme is working. From 30% in 2011, the smoking prevalence dropped to 25% in
2015. The Philippine College of Physicians reported that there were 3.5 million less smokers in
2013, cutting down the total to almost 14 million. I need the figures on smoking intensity
(number of sticks per smoker) and many more of such data at retail level, to appreciate the
effects better, but these are slow in coming.
Our law is actually a health measure confused to being a fiscal one. Hence the big incremental
revenues have been earmarked largely to fund the needs of universal health care, with
particular attention given to the poor. From 53 billion pesos in 2013, the budget for health
almost tripled to 142 billion pesos in 2015. The extra money has allowed government to pay the
premiums of 52 million poor Filipinos in 2015 (from only 21 million in 2013) as beneficiaries of
the social health insurance program.
The Sin Tax Law is up for review by the new Congress anytime soon. Overhauled was the old
universe and out there is a constellation of forces that remain unknown. If change is coming to
our law, I hope its not for the bitter. - 30 -