Sin Tax is a tax levied on products or activities, which are considered sinful or harmful and considered as objects of social disapproval, such as liquor and tobacco. Sin tax or sometimes called sumptuary tax is meant to reduce the consumption of those products or services by taxing them, aside from the common sales tax, to make them more expensive, less affordable and less accessible by consumers.
According to the Department of Health (DOH), the Philippines has an estimated 17.3 million tobacco consumers, the most number of smokers in Southeast Asia. Filipinos on average consume 1, 073 cigarette sticks annually, while the smokers in the region consume less than a thousand sticks yearly. This high consumption rate is seen as a result, among others, of the very low cigarette prices in our country.
Smoking is responsible for 71 percent of lung cancer deaths in the world. Consequently, lung cancer is the leading form of cancer in the Philippines. DOH statistics reveal that 10 Filipinos die every hour because of smoking.
According to the DOH, a 10 percent increase in tobacco taxes will reduce the number of smokers by two million by 2016. A significant decline in the number of smokers will likewise reduce the number of smoking-related deaths.
Meanwhile, drinking alcohol, though effects are relatively less severe health-wise than smoking, has posed a number of costs on the individual and society.
House Bill 5727, commonly known as the Sin Tax Bill and now the Sin Tax Reform Act of 2012, restructured the taxes imposed on alcohol and tobacco goods patterned since its last amendment. Duties on these products are a potential revenue source that will help fund the Universal Health Care Program of the administration. Likewise, higher taxes—and consequently higher costs—are seen as a deterrent to the consumption of “sin” products, whose adverse effects are mostly borne by the poorer segments of society. It is like hitting two birds with one stone. The passage of the excise tax reform on tobacco and alcohol thus marks a historic victory for health and revenue reform in the Philippines for five main reasons.
First, the measure achieves all essential reforms by correcting inequities in tax structure that have plagued the system for decades. These inequities have made sin products cheaper than they should be, to the detriment of public health objectives.
The version that was passed removes the price classification freeze that has pegged tobacco products to 1996 prices as the basis for their tax classification.
This version removes annexes that have unfairly favored brands introduced at an earlier date.
This version provides for a unitary tax regime by 2017 for tobacco and fermented liquor, a shift from the current multi-tiered system that has allowed smokers to downshift to lower-priced products.
This version indexes the tax rates of tobacco and alcohol by 4% every year so that these products do not become more affordable over time, consequently exposing the poor and the young to the harmful effects of smoking and excessive drinking;
Second, the excise tax incidence for tobacco products jump from a measly 29% in 2012 to a respectable 63% by 2017, close to the international standard recommended by the World Health Organization and the World Bank that tobacco products be taxed excise at two-thirds their net retail price.
Third, this version will allow a collection of P33.96 billion in incremental revenues from tobacco and alcohol for this year and P184.31 billion over the next four years, adequately covering the financing requirements outlined by the Department of Health for the Aquino administration’s Universal Health Care program.
Fourth, the excise regime for distilled spirits will be compliant with World Trade Organization standards by adopting a mixed system of P20 NRP per proof liter specific tax + 15% NRP per proof ad valorem in 2013 and 20% NRP per proof in 2015, and having removed raw materials from the current basis of tax classification. BACKGROUND ON HEALTH
By now the health hazards of smoking and tobacco use are well known. Smoking is the major contributor to many types of cancer, heart disease and other serious or potentially fatal conditions that are the chief cause of death of Filipinos. Cigarettes contain more than 4000 chemical compounds and at least 400 toxic substances. When you inhale, a cigarette burns at 700°C at the tip and around 60°C in the core. This heat breaks down the tobacco to produce various toxins. As a cigarette burns, the residues are concentrated towards its butt. The products that are most damaging are: tar, a carcinogen (substance that causes cancer), nicotine is addictive and increases cholesterol levels in your body, carbon monoxide reduces oxygen in the body, components of the gas and particulate phases cause chronic obstructive pulmonary disorder (COPD).
It is given that smokers are more likely to get cancer than non-smokers. The most related cancer with respect of the consumption of tobacco products are lung cancer, throat cancer, and mouth cancer, which are not usually seen on non-smokers. Studies show that 1of the 5 addict smokers (who smoke almost 15 sticks everyday) will die of lung cancer. The well-known chemical of a cigarette, Nicotine, plays a big role on causing kidney cancer and bladder cancer. The most common (and the most expedient way) to get nicotine and other drugs into your bloodstream is through inhalation — by smoking it. Your lungs are lined by millions of alveoli, the tiny air sacs where gas exchange occurs. These alveoli provide an enormous surface area — 90 times greater than that of your skin — and thus provide ample access for nicotine and other compounds. Once in your bloodstream, nicotine flows almost immediately to your brain. Although nicotine takes a lot of different actions throughout your body, what it does in the brain is responsible for both the good feelings you get from smoking, as well as the irritability you feel if you try to quit. Within 10 to 15 seconds of inhaling, most smokers are in the throes of nicotine’s effects. Nicotine is also metabolized in your lungs to cotinine and nicotine oxide and it goes along with red blood that are responsible on distributing gas supplement on the different parts of our body. The remaining nicotine is filtered from the blood by your kidney and excreted in our urine. In this process, cancer on kidney and bladder can be developed.
In smokers, the rate of decline in lung function can be three times the usual rate. As lung function declines, breathlessness begins. Chronic obstructive pulmonary disease (COPD) is a collective term for a group of conditions that block airflow and make breathing more difficult. The emphysema – breathlessness caused by damage to the air sacs (alveoli) is one of the conditions under COPD. Another condition under COPD is the chronic bronchitis – coughing with a lot of mucus that continues for at least three months. Smoking is the most common cause of COPD and is responsible for 80% of cases. It’s estimated that 94% of 20-a-day smokers have some emphysema when the lungs are examined after death, while more than 90% of non-smokers have little or none. COPD typically starts between the ages of 35 and 45 when lung function starts to decline anyway. There is a list of other risk that is caused by smoking like hypertension (high blood pressure) – a risk factor for heart attacks and stroke. The blood vessels in the eye are sensitive and can be easily damaged by smoke, causing a bloodshot appearance and itchiness. Smokers take 25 per cent more sick-day-year than non-smokers. Smoking also affects your looks: smokers have paler skin and more wrinkles. This is because smoking reduces the blood supply to the skin and lowers levels of vitamin A.
On the other hand, liquor or alcohol consumption is one of the subjects of the reform. Too much alcohol intake can cause severe conditions that may lead to death. These conditions if not long term disease, it is a one it combo that will cost your life. Studies show that most of vehicle accidents occurred is related to alcohol consumption. Alcohol lowers the blood sugar level and is harmful to the brain. It might even cause irreparable nerve damage. The one organ that is mostly affected by drinking is the liver. Basically liver is capable of converting alcohol into other compounds rendering them harmless to the body. Liver cells synthesis fat from excess alcohol which is deposited in hepatic cells. This deposition disturbs protein synthesis and conversion of glycogen. Excessive accumulation of fats disturbs the enzyme production and the condition is known is fatty liver syndrome. In advance stages fatty cells accumulate so much that it causes liver cirrhosis. Alcohol intake results in dilation of peripheral blood vessels. This is due to the oxidation of alcohol and the resultant production of heat. Due to constant dilation the arterial walls get damaged which has an effect on the heart. Also, alcohol consumption has a harmful effect on kidneys also as they have to do extra work to eliminate excess of water. Excessive alcohol intake might induce loss of memory. RATIONALE OF THE ACT
1. To promote health by discouraging vice.
2. To collect more revenue for healthcare.
There are actually 8 major implications of the amendments on the Sin Tax Law. First is the removal of the price or brand classification freeze. The proper tax classification of alcohol and tobacco products will now be determined every two (2) years.
Second, there is a gradual shift from the multi- tiered structure to a unitary taxation which means that there would be a simplified classification of the aforementioned products. Instead of its previous classifications (for tobacco products, there were actually 4 classifications, now it would only be classified as either less than P11.50 or more than P11.50), a unitary taxation would be used to prevent downshifting to lower priced brands, to discourage consumption of sin products, and for easier tax administration.
Third, there would be annual indexation of excise taxes to prevent the excise taxes to be eroded by inflation. The government would be making sure that the excise tax would be relative and proportional to the linking of wages, pensions, or other remuneration to an index representing the cost of living, so that they are automatically adjusted up or down as the need arises.
Fourth, the reform conforms to the World Trade Organization ruling on the prices of distilled spirits which corrects our non-conformity before to eliminate discriminatory systems of taxation. It sets the ad valorem tax rate of 15% of the NRP per proof and a specific tax of P20 per proof.
Fifth, the amendment would mean generation of more revenues for the government. On the first year of implementation, the government is expected to raise additional revenues worth P33.96 billion, of which P23.4 billion is from cigarettes, P6.06 billion from distilled spirits and P4.5 billion from fermented liquors.
Sixth, it would also provide for an additional funding for tobacco farmer’s livelihood support. Section 8 of the law provides that, “15% of the incremental revenue collected from the excise tax on tobacco products under R.A 8240 shall be allocated and divided among the provinces producing burley and native tobacco which shall be exclusively utilized for programs to promote economically viable alternatives for tobacco farmers and workers.”
Seventh, there would be higher health care spending. 80% of the remaining incremental values will be allocated for the universal health care program under the National Health Insurance Program and 20% will be allocated nationwide for medical assistance and health enhancement facilities program. This means that there would be financial risk protection thru enrolment to Philhealth – thus enjoying extensive benefits entitlements and reduced out-of-pocket expenses and access to affordable and quality health care services.
Lastly, the reform would promote health more extensively by discouraging vices thus reduction of tobacco and alcohol consumption leads to better health outcomes. The reform envisions a healthy Filipino society.
With these reforms, all Filipinos, especially the youth and the poor will be protected even more. TABLE OF THE RESTRUCTURED SIN TAX
RESTRUCTURED SIN TAX|
| 2013| 2014| 2015| 2016| 2017|
TOBACCO (per pack)|
Less than P11.50| P12.00| P17.00| P21.00| P25.00| P30.00| P11.50 and more| P25.00| P27.00| P28.00| P29.00| P30.00| FERMENTED LIQUOR (per liter)|
Less than P50.60| P15.00| P17.00| P19.00| P21.00| P23.50| P50.60 and more| P20.00| P21.00| P22.00| P23.00| P23.50| DISTILLED SPIRIT (specific per proof liter + ad valorem per proof)| NRP per proof| P20.00 + 15%| P20.00 + 15%| P20.00 + 20%| P21.80 + 20%| P21.63 + 20%|
UNIVERSAL HEALTH CARE
The total cost of universal healthcare (UHC) which the reformed law seeks to compensate from 2012 to 2016 will amount to P682.1 billion. The national government’s financing requirement for the next five years amounts to a total of P224.8 billion or a 33 percent share in the UHC cost. Additional revenues to be brought about by the sin tax reform are being viewed as one of the main sources for UHC national government financing. It specifically states that P92.7 billion will account for the national government covering for a 100 percent subsidy for the premium of 5.2 million or the bottom 20 percent of the poorest families. P55.3 billion will account for a 50 percent subsidy for the next 5.6 million of poorest families (the other half will be funded by the local government). P76.8 billion will account for investment subsidies in the health sector. ADDITIONAL REVENUES TO BE BROUGHT ABOUT BY THE SIN TAX REFORM AMOUNT| PURPOSE|
P92.7 B| 100% subsidy of the poorest 5.2 million families| P55.3 B| 50% subsidy of the next 5.6 million poorest families| P76.8 B| Investment subsidies in the health sector|
ISSUES AND CONCERNS
The rise of a good thing will be the rise of its bad things. The law had its crusade for at least 16 years. The Sin Tax Reform Law has been in the process of 16 years in the making. Economic Expert and Political Critic Ms. Winnie Monsod stated that the reason behind the long term process undergone by the law is because of the strong lobbying efforts of the Anti-Sin Tax Reform groups. The process of lobbying for this reform made conclusions and speculations that there is an existing issue on corruption and bribery. Strong lobby money can be one of the indications that Philippine Decision-Makers are corrupt and can easily be bribed as stated by Philip Morris International, one of the leading tobacco companies.
The proposed reform passed the lobbying process, at last on December 20, 2012 when President Aquino signed the law. The ones who wanted this reform had a glimpse of victory. The bill had its real battle in the Congress. The Tobacco Industry raised arguments that made the debate on this bill hotter than the debate on the lobby system. Such issues are the threat on a rapid shift of tobacco farmers to other crops and as result, the production of tobacco products will decrease and that there would be rapid smuggling. The Tobacco Industry especially the Fortune and Philip Morris Corporation is the biggest company who insisted that these reforms be rejected. One of the strong points of the government was the advocacy on a healthier Filipino society. Study shows that 89,000 people die every year because of sin product consumption. Also, of the 10 leading causes of death here in the Philippines, 7 may be attributed to sin products. There is 18% of our population who smokes and most of these people came from a financially challenged family. It is so ironic to think that mostly those who smoke are the ones who are not financial capable to make their tobacco-caused disease be treated.
As a result of the reformed law, there is a projected shift of farmer’s production crop, from tobacco to another. As an effect, production on tobacco products will decrease as well as its consumption. It is good for those who are in favor of the anti-smoking advocacy. However, on the part of the tobacco companies, it is unprofitable. For the addict smokers, if there will be low production, it is either they change their life-style and gradually lessen their consumption or they prefer to push through with their urge to smoke and as a result, there may be a rise of smuggling. EFFECTIVITY
The excise taxation of tobacco and alcohol products has a long history. It has shifted from, specific, compound, to ad valorem, and then back to specific. Even with these different reforms, both industries have survived for decades. Consumers of these products have continuously sustained the existence of the alcohol and tobacco industry. On the other hand, tobacco farmers who might be displaced by the reform and are forced to shift planting other crops or other livelihood endeavors will continue to share in the incremental values. The law provides that a share of the revenues will go towards farmer support programs. It was signed into law on December 20, 2012 and became effective last January 1, 2013. The implementing rules and regulations were issued on December 21, 2012.