FOR reasons that are not entirely clear, Representative Eugene Michael de Vera of the ABS (Arts, Business, and Science Professionals) party-list has filed House Bill 4144, which would modify the existing sin tax on tobacco products (under Republic Act 10351) to introduce a two-tiered tax scheme, replacing the current unitary tax.
Representatives of the nation’s tobacco farmers, the PhilTobacco Growers Association and Philippine Aromatic Tobacco Development Association, raised strong opposition to the proposed new tax, saying that tobacco is being singled out for “more than our fair share of the contribution” to sin taxes while other excisable goods are being overlooked. The decline in demand for tobacco due to the tax, the two associations said, is already creating great hardship for the farmers, which would only worsen if the tax were increased.
Under the current tax scheme provided for in RA 10351 (which also covers alcohol products), cigarettes are taxed at a unitary rate of P30 per pack, which from 2017 will be increased at a rate of four percent annually.
Under the proposal in HB 4144, there would be two tax levels, one at P32, which would be applied to cigarettes with a retail price (minus all taxes) of P11.50 or less per pack, and one at P36, which would apply to cigarettes costing more than P11.50 per pack. The annual increase of these rates would also be raised to five percent.
The tobacco stakeholders’ opposition to the proposed new sin tax is valid, though perhaps not for reasons of livelihood —with appropriate support, farmers can shift to other crops —but because the proposal in HB 4144 is an attempt to fix something that is not broken, and in fact, works so well it is considered a model for the rest of the world.
Praised by the World Bank
Last July, the World Bank released a report that offered nothing but praise for the current sin tax, which was implemented in 2012. From P55.7 billion in 2011, sin tax revenues climbed by 155 percent to P141.8 billion, the World Bank noted, which allowed the government to triple the budget of the Department of Health, greatly expanding rural health care and programs for the poor. In addition, the imposition of the tax also caused a decline in smoking prevalence in the country. One of the key features of the sin tax law, the Bank said, was that it simplified tax collection and encouraged greater transparency because it was a unitary tax – which the proposed changes would eliminate.
“Other countries could learn a lot from this success, particularly the design and implementation of the STL (sin tax law),” the World Bank said. “This tax measure clearly ranks as one of the most decisive and significant policy reforms in the Philippines in the past decade.”
In its recommendations, the World Bank did note that now that the current sin tax program has such a highly positive profile, the government of the Philippines should exert even more effort to implement, monitor, and account for the results effectively. But what the World Bank certainly did not recommend—nor have the Philippines’ own public health and economic experts—was for the existing tax program to be modified in any significant way. Changing to a tiered tax scheme from the current, highly effective unitary one will only needlessly complicate collection and accounting, and with smoking rates continuing to decline, according to Department of Health statistics, will likely not be able to generate additional revenue as a positive trade-off for a more complex system.
There are a host of other important issues that should occupy Congress’ attention before effort is spent trying to fix something that isn’t broken. HB 4144 should be shelved and forgotten.