THE Sin Tax Law that the government introduced in 2012 has generated P86.1 billion in additional revenue over the past four years, marking a 155 percent jump in collections from 2011 to 2015 and helping support social welfare programs, the World Bank said in an analysis, citing the Philippines as a model for other countries.
Sin tax collections rose to 141.8 billion in 2015, when it accounted for 1 percent of the country’s gross domestic product (GDP), from 55.7 billion in 2011, before the law took effect.
The windfall revenue, the World Bank said, has brought a slew of benefits to the public. Other countries, it said, could learn a lot from this success, particularly “the design and implementation of the STL.”
This tax measure clearly ranks as one of the most decisive and significant policy reforms in the Philippines in the past decade, it added.
The analysis contained in the Bank’s latest report, titled Sin Tax Reform in the Philippines: Transforming Public Finance, Health, and Governance for More Inclusive Development, said the sin tax law helped the Philippines scale up its health care financing, nearly doubling the Department of Health’s (DOH) budget in the year the law took effect. The DOH budget this year is three times its 2012 level (in nominal terms), reaching P122.6 billion.
The scale-up has enabled DOH to finance the extension of fully subsidized health insurance to the poorest 40 percent of the population. From 2013 to 2014, the number of poor and near-poor families enrolled in the National Health Insurance Program, the Bank pointed out, increased from 5.2 million to 14.7 million before growing to 15.3 million by end-2015, almost tripling the coverage of the poor and near-poor. Sin tax revenues were also subsequently used to subsidize the insurance coverage of senior citizens, further expanding access to care among the vulnerable.
Among other benefits, STL prompted people to reduce, and even stop, smoking because of the significantly increased retail prices for cigarettes. Early data suggests “some decline in smoking prevalence.”
As a reform measure, STL raised and simplified tobacco and alcohol excises and increased government revenues. Besides, it strengthened governance arrangements on the tax and expenditure sides.
“This was done through the simplification of tax rates (for example, moving to a unitary excise tax); by promoting greater transparency and accountability in the allocation of health insurance subsidies by using an existing official poverty-targeting mechanism; and by mandating annual accountability reports on the implementation of the STL by all concerned agencies to the Congress of the Philippines,” it stated.
“Today, after more than three years of implementation and with less than a year to go until the transition to unitary tax rates is completed, the STL appears to have been largely successful,” the Bank said.
At the same time, the Bank pointed out that STL is a multiyear transition to a new tax regime, and its full implementation stretches to 2017 and beyond.
By 2017, all cigarettes would be subject to a single unitary excise tax of 30 per pack after a quadrupling of the lowest excise tax tier of 12 in 2013 from 2.72 in 2012.
“After 2017 the excise tax will be increased automatically by 4 percent per year. Higher cigarette prices should improve population health by curbing smoking,” the report said.
The Bank stressed that this month, a Congressional Oversight Committee is mandated to review the impact of the tax rates provided under the Act.
In line with this, it recommends priority actions for consideration such as:
Conducting an annual review of the monitoring framework, and taking early action on data gaps or concerns about the STL’s implementation on both the tax and expenditure side. The analysis will require timely disclosure by the government of key data on tobacco and alcohol markets, revenues collected from the sin tax, and direct and indirect health expenditure impacts;
Ensuring the continued success of the tax stamp system, complemented by enhanced administrative oversight of the tobacco industry and strengthen security features as any vulnerabilities emerge to reduce the potential for smuggling and domestic-based tax evasion;
Making sure that the poor and near-poor who are eligible for free health insurance are informed of their entitlements and benefits. Providing them health insurance cards could be a quick win;
Ensuring financial sustainability of STL earmarking by strengthening PhilHealth’s actuarial capacity and information systems, and institutionalizing a rolling three-to-five-year Medium-Term Expenditure Framework in the DOH;
Designing and implementing health awareness campaigns to reinforce the health objectives of tax increases, namely to reduce smoking incidence and excessive drinking, especially among the youth;
Enhancing transparency and accountability of budgets and expenditures for investments in tobacco-growing regions financed by sin tax earmarks; and
Sustaining a broad coalition of civil society and continue the legislative engagement and support for the effective implementation of the STL and its objectives related to health, social contract financing, and good governance.
At the same time, the Bank also gave a word of caution. The reform’s high profile, it said, raises the stakes: “It needs to demonstrate success in improving health, revenue, and earmarking outcomes or else potential sin tax reforms in other contexts may not get the support they need.”