Senate deliberations are now ongoing regarding Senate Bill 3249 by Senator Miriam Defensor- Santiago entitled, “AN ACT RESTRUCTURING THE EXCISE TAX ON ALCOHOL AND TOBACCO PRODUCTS”, which is more commonly known as the “Sin Tax Bill”.
The particular bill spurs debate amongst different sectors because of the supposed effects that it may entail to producers, large or small, and consumers alike. In line with this, the Ateneo Economics Association seeks to establish a concrete stand on the matter for not only will it concern public health, but would also affect the overall wellbeing of the Philippine economy.
While the bill takes into consideration both tobacco and liquor products, it is the organization’s prerogative to only include the former in its scope since the proposed 700 percent increase in taxation of the said product seems to be the source of contention.
It cannot be said that increasing the tax for tobacco products is unwarranted since the Philippines has the lowest price for such products in Asia. On average, a pack of cigarettes in the country is only Php 27.72 while the same pack costs Php 365.20 in Singapore, Php 146.08 in Malaysia, Php 104.84 in Thailand, and Php 64.68 in Indonesia. Furthermore, the Philippine sin tax has not been adjusted for inflation since 1996 and therefore remains relatively out to date, leaving the revenue on tobacco sales not fully realized. (Bello, 2012)
According to the government, increasing the sin tax would yield an additional Php 33 billion in taxes. Eighty-five percent of this revenue would be allotted towards the implementation of universal healthcare and the remaining fifteen percent would be distributed among the tobacco farmers who would be affected by the tax increase. (GMA News, 2012)
Indeed, the government is right in considering the tobacco farmers who would lose their livelihood because of the natural reaction of the economy on a tax increase. However, in a macroeconomic sense, the tobacco industry contributes less than one percent to the total employment of the country. (Austria & Asuncion, 2008)
With the possible threat on tobacco farmers’ livelihood that may be brought by the passing of the sin tax bill, they could change to another crop since growing tobacco is not much of a high-yielding investment. As a matter of fact, the average income per hectare of Virginia tobacco crop, the best of its kind, is projected at the range of Php 51,642, while a hectare of bitter gourd (“ampalaya”) gives a return of Php 158,640, roughly thrice as much the income from growing tobacco. (de Leon, 2012)
It is the recommendation of the organization that the government give subsidies and financial support to the affected farmers until such time that they are able to shift to their crop of choice.
In the long run, the annual economic costs of smoking in the Philippines will be reduced. In the 1990’s, the economy was severed with Php 18.98 billion worth of productivity loss because of health related ailments and premature deaths, both brought about by smoking. This figure is expected to further increase as year 2012 draws to an end.
The sin tax bill is also a way for the government to lessen expenses on treatments of smoke- related diseases. Recently, there has been increasing number of youths that consume tobacco products even though it is against the law. In a research of the National youth Commission last month, 2.5 million Filipino teenagers are smoking because of the low cost of cigarettes. (Lapeña, 2012) The sin tax bill aims to lessen the consumption of tobacco products and prevent the increase in the number of smokers in our country, as well as the expensive and sometimes fatal diseases that accompany smoking.
It cannot be denied that the sin tax bill intends to curb tobacco use and a closer look at the effect of the bill on tobacco prices will show that it will make purchasing tobacco products more difficult for the lower socioeconomic class. In light of this, people may say that this is an oppression of the poor. However, it should not be seen as such since the situation of the poor will only worsen if they continue to take tobacco products which would increase their risk of smoking-related diseases.
According to Mr. Anton Ragos (2012), “515 to 827 Filipinos contract smoking-related lung cancer and lung heart diseases daily.” The annual healthcare costs of such diseases in the 1990’sper individual smokers was (1) Php 192,597 for lung cancer; (2) Php 79,038 for chronic obstructive pulmonary disease; (3) Php 147,107 for coronary heart disease, and; (4) Php 85,567 from cerebrovascular disease. (Austria & Asuncion, 2008)
If the data above were to be adjusted to include inflation, then the updated costs would be as follows:
Note: The CPI inflation used is 72.67575. The CPI for 1999 is 74.11 and the CPI for 2010 is 127.97.
With these costs, if 240 Filipinos die daily and 70% of these deaths are due to tobacco-related diseases, it is certain that the poor would not be able afford treatments for such diseases and would make up the majority of the 168 deaths per day from smoking-related diseases. (Ragos, 2012)
While the effects in the health sector of a tax increase is good, it is said that the passing of the bill might cause a bad effect in our economy because of black markets. Illegal smuggling of tobacco products might occur to be able to supply tobacco products in a cheaper price. It is contested however that, in countries that experienced increased tax revenues due to increase in tobacco prices, there has been no significant change in the level of smuggling (Ragos, 2012). Whether the black market strengthens or not, it would not be the passing of the bill that should be held accountable for it but rather the implementation of the law in our country. With good governance, bad effects like the black market would not happen.
The main concern of the tobacco producers is that they would be more affected by the price increase compared to the imported tobacco products because the bill would only levy small tax increase to imported products and therefore would be in a better position than local firms (Victa, 2012).
Although the small players may seem to be at a disadvantage, the SB 3249 includes putting different tobacco qualities in tiers and lower-quality tobacco products would be given lesser taxes so this scheme would most likely help even out the competition. Furthermore, there is less competition to talk about since 95% of the tobacco industry is controlled by the merged Lucio Tan’s Fortune Tobacco and transnational firm Philip Morris (Bello, 2012).
However, it is also prudent to consider the fact that tiered fixed taxes may still encourage cigarette companies to downshift to cheaper products. This is counter to the aim of the bill, as cheaper cigarettes will begin to flood the market, and prices will overall go down. Therefore, the Ateneo Economics Association would like legislators to consider a percentage tax that would be even across all tiers. This would not encourage downshifting, but would also not hit small time producers too hard. It may also be insightful to consider a quota rather than a tax, though still bearing in mind that according to the Framework Convention on Tobacco Cotnrol of the World Health Organization, price and tax measures are the best incentive to control consumption. (Ragos 2012)
Based on the information gathered, the Ateneo Economics Association, through its Research and Development Department, supports the goals and plans under Senate Bill 3249, commonly known as the “Sin Tax Bill” which aims to improve not only the lifestyle of Filipinos but the country’s economy as well. The Bill already supports livelihood adjustment, discouragement of downshifting, subsidizing health programs, and increased revenues, which were the greatest concerns of AEA.
Austria, M. S., & Asuncion, R. C. (2008, August). MEASURING EMPLOYMENT IN THE TOBACCO INDUSTRY: THE CASE OF THE PHILIPPINES. Manila, Philippines.
Bello, W. (2012, May 31). The ‘Sin Tax’ Bill: Promoting the Nation’s Health and Plugging Lucio Tan’s Loophole for Legal Tax Evasion. Retrieved from Inquirer.net: http://opinion.inquirer.net/29837/the-sin-tax-bill-promoting-the-nations-health-and-plugging-lucio-tans-loophole-for-legal-tax-evasion
de Leon, P. (2012, March 13). Tobacco industry contributes little to Philippine economy. Retrieved from InterAksyon.com: http://www.interaksyon.com/business/26747/tobacco- industry-contributes-little-to-philippine-economy
GMA News. (2012, June 7). PHL fiscal authorities say HB 5727 reflects political will. Retrieved from GMA News Online: www.gmanetwork.com/news/story/261018/economy/finance/phl-fiscal-authorities-say-hb-5727-reflects-political-will
Health Justice Philippines. (2010, June 17). Philippines Tobacco Tax Report Card. Bangkok, Thailand.
Jimenez, C. S. (2012, August 3). WHO blasts tobacco industry meddling in government. Retrieved from InterAksyon.com: http://www.interaksyon.com/article/39368/who-blasts-tobacco-industry-meddling-in-government
Lapeña, C. G. (2012, May 31). Activists: As older smokers get sick, tobacco firms target youth. Retrieved from GMA News: http://www.gmanetwork.com/news/story/260069/news/nation/activists-as-older-smokers-get-sick-tobacco-firms-target-youth
Victa, M. (2012, June 30). Tobacco industry under siege. Retrieved from BusinessMirror: http://businessmirror.com.ph/home/regions/29243-tobacco-industry-under-siege