Sin Tax Bill

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The Sin Tax Bill (House Bill 5727 and Senate Bill 3249) is a bill which aims to restructure the existing taxes imposed on alcohol and tobacco goods. It's goal is to promote health by discouraging vices.

Furthermore, with higher taxes and higher costs, these products can be potential revenues that will help fund the Universal Health Care program of the Philippine government. This bill is expected to bring about PHP 31 billion additional revenues: PHP 27 billion from the tobacco industry and PHP 4 billion from the alcohol industry.

The House of Representative version of the bill is authored by 1st District of Cavite Representative Joseph Emilio Abaya, who is also the Chairman of the Committee on Appropriations; the Senate version is authored by Senator Franklin Drilon.

Click to read the original House of Representatives and Senate versions of the bill.

Contents

Background

According to the Department of Health (DOH), almost 17.3 million Filipinos are tobacco consumers. About 1,073 cigarette sticks are consumed by Filipinos annually. This high consumption rate is seen as a result of low cigarette prices in the country.

Smoking is seen as one of the primary factors responsible for 71 percent of lung cancer deaths in the world. According to DOH statistics, lung cancer is the leading form of cancer in the country, and that 10 Filipinos die every hour because of smoking. DOH also states that a 10 percent increase in tobacco taxes will reduce the number of smokers, which in turn will reduce the number of smoking-related illnesses and deaths.

Excessive alcohol drinking, on the other hand, may lead to:

  • Vehicular accidents
  • Fetal deformities
  • Violence/crime
  • Productivity losses
  • Suicide
  • Fires
  • Accidental falls

The Department of Finance (DOF) determined the flaws in the current system of taxing “sin” products, as detailed by the following:

  • Under the Prize Classification Freeze, old brands are taxed differently from new ones
  • Because of multi-tiered tax structure, smokers tend to prefer cheaper cigarette brands. According to the statistics provided by the Bureau of Internal Revenue (BIR), consumers downshifted from medium-priced cigarettes to low-priced cigarettes. In the case of alcohol, consumption of low-priced beers ballooned from less than 40% in 1994 to more than 70% in 2010.
  • As tax is affected by inflation, tax burden decreases due to lack of price indexation.
  • The country's taxation on distilled spirits is non-compliant with the World Trade Organization (WTO) rules.

Main points

  • Excise taxes of distilled spirits will be in accordance with their alcohol content.
  1. By January 2012, it will be P317.45 per proof liter; January 1, 2013, PHP 233.73 per proof liter; and January 1, 2014, PHP 150.00 per proof liter. On the years that will follow, excise tax rates will be adjusted to the present value using the appropriate alcoholic drinks price index by the NSO.
  • By January 2012, excise taxes of wines will be collected per liter of volume capacity
  1. Regardless of proof, it is PHP 300.00 for sparkling wines/champagnes and PHP 50.00 for still wines. On the years that will follow, excise tax rates will be adjusted to the present value using the appropriate alcoholic drinks price index by the NSO.
  2. Fortified wines, or natural wines with distilled spirit to increase alcohol strength, shall be taxed as distilled spirit.
  1. Tax for tobacco products which are specially prepared for chewing will be PHP 1.87 per kilogram. Every year thereafter, excise tax rates will be adjusted to the present value using the appropriate tobacco products price index by the NSO.
  • Tax for cigars and cigarettes will be PHP 200 per cigar. Every year thereafter, excise tax rates will be adjusted to the present value using the appropriate price index by the NSO.
  1. Tax for cigarettes packed by hand will be PHP 14 per pack on January 2012, PHP 22 per pack on January 2013, and PHP 30 per pack on January 2015. Every year thereafter, excise tax rates will be adjusted to the present value using the appropriate tobacco products price index by the NSO.
  2. Tax for cigarettes packed by machine will be PHP 14.00 per pack if the net retail price is PHP 10.00 and below per pack, and PHP 30.00 per pack if the net retail price is more than PHP 10.00 per pack by January 2012; PHP 22 per pack if the net retail price is PHP 10.00 and below per pack; PHP 30.00 per pack if the net retail price is more than PHP 10.00 per pack by January 2013; and PHP 30.00 per pack by January 2014. Every year thereafter, excise tax rates will be adjusted to the present value using the appropriate tobacco products price index by the NSO.
  • Under RA 8240 or the Act Amending Sections 138, 139, 140 and 142 of the National Internal Revenue Code, 15 percent of the incremental revenue collected from the excise tax on tobacco products will be allocated and divided among provinces which produce burley and other native tobacco in accordance with the volume of tobacco leaf production. Funds will be utilized for programs to promote viable alternatives for tobacco farmers and workers.
  • A portion of incremental revenues will be allocated to finance the Universal Health Care program of the government, the amount of which will be based on the annual requirement of the said program as determined by DOH.

Reactions

Department of Health Secretary

During the Senate committee on ways and means hearing on the excise tax reform bill or sin tax bill, DOH Secretary Enrique Ona said that this bill with immediately affect the comfort and pockets of smokers as well as farmers and manufacturers. However, he added that regardless of where people are coming from, this bill needs to be passed for a healthier nation, a longer life expectancy for many people and a chance to rapidly modernize the Philippine health system-–that is, its public health interventions and hospital system.

Secretary Ona articulated the health implications of smoking. In the Philippines, cancer of the lungs, bronchus, trachea or windpipe, and gastrointestinal tract or “bituka” is one of the four leading causes of death. He emphasized that according to the National Nutrition and Heart Survey of 2008, smoking does not only cause cancer and lung diseases; it also leads to stroke and heart attack.

Ona added that it is alarming that the Philippines is the number one smoking country in Southeast Asia. He was also disturbed at the high prevalence of smoking among young Filipino girls and boys. Of tobacco users in the country, 17.5% are girls and 28.3% are boys aged 13-15 years. Early smoking can eventually lead to an earlier onset of smoking-related diseases.

Ona ended his presentation by saying that the additional revenues that will come from this tax reform would help ensure the financial stability of the country's universal health care program that will surely benefit all Filipinos.

Tobacco growers

Philippine Tobacco Growers Association (PTGA) president Saturnino Distor said that the very high tax of as much as 708 to 1,000 percent on low-priced cigarette brands will push these products out of the market and leave the farmers with no market to sell their produce. He said that tobacco farmers and others who are dependent on the tobacco industry are threatened by the bill. Their group appeals to the Senate to revise the provisions in the House of Representatives tax bill.

Urban poor group

Elvis Campos of Mamamayan Kilos, Alab ng Maralita said that the government's efforts to put additional taxes on cigarettes and alcohol are “anti-poor.” He said that the bill will have adverse impact on poor consumers. Campos suggested other ways to raise additional revenues. He also emphasized the importance of collection efficiency and prevention of corruption and smuggling.

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Citation

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