A bill seeking to maintain a two-tiered excise tax on cigarettes could impact on the government’s infrastructure development program and reverse the positive health effects of lower tobacco consumption, an analyst said.
“We think this can be detrimental to the revenue-raising activities [of the government]needed to carry out the ambitious plans of the government to bolster infrastructure spending,” Emilio Neri Jr., vice president and lead economist at the Bank of the Philippine Islands (BPI), said on Wednesday.
The Duterte administration needs at least P8 trillion to close the infrastructure gap over the next six years, the Department of Finance (DOF) earlier said.
In particular, the Duterte administration plans to spend P860.7 billion, equivalent to 5.4 percent of the country’s gross domestic product (GDP), on large-scale infrastructure projects next year.
The DOF noted higher spending on infrastructure can be done if the government has enough revenue. The proposed simplified tax system, once approved, will ensure consistent revenue generation on a par with, if not better than, those implemented by other members of the Association of Southeast Asian Nations, it said.
Despite the opposition from the national government, farmers, tobacco manufacturers, and nongovernmental organizations and health groups, the House Committee on Ways and Means approved the Mighty Corp.-backed House Bill (HB) 4144 on Monday.
Twenty-six members of the committee approved the bill filed by Representative Eugene Michael de Vera of ABS party-list. The bills seeks a P32 tax rate per pack of cigarettes priced at P11.50 and below and P36 per pack for cigarettes with a net retail price above P11.50.
The bill seeks to amend the Section 145 (C) of Sin Tax Reform Law passed in 2012, which provided for a move toward a unitary excise tax rate system for cigarettes by 2017 and a tax rate indexed to inflation by increasing it by 4 percent annually.
In a position paper, the DOF opposed the HB 4144 as a tiered structure leads to a wider price dispersion which is not good for both fiscal and public health.
“Using percentage to index two or more tax rates will widen the gap in the long-run, e.g., 5 percent of P32 is smaller than 5 percent of P36. In the process, revenue generation is not maximized and health objectives are not fully achieved,” it said.
“If the system reverts to the tiered system, it may also be reversing the positive health effects of reduced tobacco consumption,” BPI’s Neri said.
More than a revenue measure, the Sin Tax Reform Law or RA 10351 is a health measure with a primary goal of curbing tobacco use in particular among the young and the poor because of its known detrimental effects to health, according to the DOF.
“A two-tiered structure only promotes downshifting and therefore does not fully discourage tobacco consumption,” it said.
During the law’s first year of implementation, the share of low-taxed, low priced cigarette to the total rose to 82.7 percent while the share of high-taxed, high-priced smoke declined to 17.3 percent.
Health groups oppose
Also on Wednesday, health groups said the approval of the bill at the House committee level reflects the position of legislators to protect the interest of the tobacco industry.
“They struck again with decisive force to ram through legislation a proposal that will kill the health and revenue gains of the Sin Tax Law. They are trying to beat the Christmas rush and hoping to deliver the goods to their masters, in this case, the tobacco companies, as soon as possible,” according to a coalition of health groups.
“The Christmas aguinaldo for a job well done may be forthcoming for these legislators. Thanks to a bill that will surely bring more profits to the tobacco companies’ coffers as more people die because of smoking-related diseases,” it said.
The group consists of the Primary Care Coalition, Action on Smoking and Health (ASH), Framework Convention on Tobacco Control Alliance Philippines (FCAP), New Vois Association of the Philippines, Health Justice Philippines, Womanhealth Philippines, and Action for Economic Reforms.
HB 4144 was filed on October 19, 2016, before the session went on break on October 21. It was referred to the Committee on Ways and Means on November 7 when the session resumed. The first committee hearing on the bill was held on November 28.
“Deliberation started the following day and could have been approved without the timely intervention of pro-health advocates among the members of the House. We are alarmed that Congress leaders are bent on getting this passed today,” said Dr. Maricar Limpin, ASH executive director.