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Jeremias N. Paul Jr.
World Health Organization
Philippine Sintax Reform:
A Win-Win for
Revenues and Health
PRESENTATION OUTLINE
I. Background
II. Impact of Sin Tax Reform
III. Concluding Remarks
Aquino Administration Social Contract with the Filipino People including Universal Health Care.
“No new taxes” promise of President Aquino.
Philippines among top smoking countries in Southeast Asia. Tobacco taxes and prices among lowest in the world.
Strong tobacco lobby with deep business and political connections. Tobacco lobby hindered previous excise tax reform efforts.
Alcohol: Deadline for Philippine compliance to WTO decision on distilled spirits.
Tight deadline during Aquino Administration – one year to make it happen.
The Philippines ratified the WHO Framework Convention on Tobacco Control in 2005.
BACKGROUND
RATIONALE FOR REFORM
Help finance Universal Health Care (UHC).
Address public health issues relating to alcohol and tobacco consumption.
Simplify the current excise tax system on alcohol and tobacco products and fix long standing, structural weaknesses: Remove price/brand classification freeze. Level the playing field. Reduce number of tiers. Make tax system more buoyant by indexing tax rates
to inflation.
REPUBLIC ACT NO. 10351 An Act Restructuring the Excise Tax on
Alcohol and Tobacco Products (RA
10351)
(Signed into Law - Dec. 19, 2012)
Landmark Legislation under the
Aquino Administration.
Fundamentally a good governance
measure with positive impact on both
fiscal and public health.
Section 8 (C): After deducting the allocations under Republic Act Nos. 7171 and 8240 (allocations to tobacco farmers),
Eighty percent (80%) for:
National Health Insurance Program
Attainment of the Millennium Development Goals
Health awareness programs
Twenty percent (20%):
Medical assistance
Health enhancement facilities program
Incremental revenues earmarked for health
REPUBLIC ACT NO. 10351
Philippine Tobacco Tax Reform Path at a Glance
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
2012 2013 2014 2015 2016 2017
In Philippine Peso
Key Features Removal of price classification freeze/tax
advantages of legacy brands.
Unitary tax structure by 2017.
Tax rates indexed to inflation starting
2017.
Health impact/WHO FCTC compliance a
major consideration in rate setting.
Bulk of incremental revenues earmarked
for UHC.
Safety nets for tobacco farmers/others.
Low
Medium
High
Premium
Tier 2
Tier 1 Unitary
341%
In Billion Pesos 2013 2014 2015 2016 2017
Projected Incremental
Revenue (Tobacco)23.4 29.6 33.5 37.1 40.9
Projected Incremental
Revenue (Alcohol)10.6 13.3 17.1 19.8 23.3
Projected Incremental
Revenue (Total)34.0 42.9 50.6 56.9 64.2
Estimated Earmark for
Health as of 201230.5 38.4 45.6 51.3 58.0
5.6
14
19
0
1
2
3
4
5
6
0
2
4
6
8
10
12
14
16
18
20
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Weighted Average Tax Rate (Peso per Pack) Volume of Removals (Billion Packs)
Tax rate
rose
150%
36%One time, 12%
increase in 2000
(RA 8240)
2004 Sin Tax Law (RA 9334)
Bi-annual tax increases
(2005 – 2011)
2012 Sin Tax
Law
(RA 10351)
Historically excise tax increases were gradual
… Focus on health changed this.
KEY ISSUES RAISED
Raising tobacco taxes …
will reduce NOT increase revenues.
will adversely affect tobacco farmers.
will increase smuggling and illicit trade.
will negatively impact the poor.
will increase unemployment.
will destroy the local tobacco industry.
LEGISLATIVE PROCESS
Malacañang Palace
Enrolment of Ratified Bill Signing of Republic Act 10351
Bicameral Conference CommitteeReconciliation of
Disagreeing ProvisionsApproval and Signing of
Bicameral Conference ReportRatification of Committee Report by both chambers of Congress
Senate of the Philippines
Senate Committee on Ways and Means Plenary Debates
House of Representatives
House Committee on Ways and Means Plenary Debates
WINS OF SIN TAX REFORM
Credits to: Manix Abrera, GMA News Online
Passed the Senate by only one vote.
Win for RevenuesActual incremental revenues higher than projected.
34
42.9
50.6
56.9
64.2
51.2 50.2
73.16.1 6.0
8.8
0
1
2
3
4
5
6
7
8
9
10
0
10
20
30
40
50
60
70
80
2013 2014 2015 2016 2017
In b
illiio
n P
eso
s
Projected vs. Actual Incremental Revenue from RA 10351
Projected Actual BIR VAT
$ 0.80 B
$ 1.21 B
$0.15 $0.14
$0.19
$ 0.97 B
$ 1.13 B
$ 1.11 B
$ 1.61 B
$ 1.29 B $ 1.46 B
Win for RevenuesSin Tax Law reversed the declining trend of tobacco
and alcohol excise collections to GDP.
Source: BIR and NSCB
0.9%
0.8% 0.8% 0.8%
0.7%
0.8%
0.7% 0.7%
0.6% 0.6% 0.6% 0.6%
0.5% 0.5%
0.9% 0.9%
1.1%
0.4%
0.5%
0.6%
0.7%
0.8%
0.9%
1.0%
1.1%
1.2%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Tobacco & Alcohol Excise Collection
Tobacco & Alcohol Excise Collection
Win for RevenuesTobacco taxes accounted for bulk of collections with share
of tobacco excise tax collections to GDP highest in 2015.
Source: BIR and NSCB
0.5%0.5% 0.5%
0.5%
0.4%0.5%
0.4% 0.4%
0.3%0.4%
0.3%
0.4%
0.3%
0.3%
0.6% 0.6%
0.8%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Tobacco Excise Tax Collection
Tobacco Excise Tax Collection
FITCH RATINGS
Investment Grade BBB- Stable (March 27, 2013);
Affirmation (March 25, 2014);
Upgraded to BBB- Positive (Sept 24, 2015)
JAPAN CREDIT RATING
AGENCY (JCRA)
Investment Grade BBB/Stable (May 7, 2013);
Affirmation (May 30, 2014);
Upgraded to BBB+ /Stable (July 6, 2015)
STANDARD & POOR’S
Investment Grade BBB-/Stable (May 2, 2013)
Upgraded to BBB /Stable (May 8, 2014)
Affirmation (April 24, 2015)
RATING & INVESTMENT (R&I)
INFORMATION, INC.
Investment Grade BBB/Stable (July 9, 2014);
Affirmation (July 20, 2015)
MOODY’S
Investment Grade Baa3 Positive (Oct. 3, 2013);
Upgraded to Baa2 Stable (Dec. 11, 2014)
Win for the EconomySin Tax Law made possible Philippines’ first investment grade rating.
$ 1.9 B $ 2.0 B
$ 1.3 B
$ 1.0 B
$ 0.7 B$ 0.5 B
$ 0.5 B$ 0.4 B$ 0.2 B
Source: GAA, DBM
Win for Public HealthHealth Budget almost triple 2012 levels
Excise tax collections from locally manufactured
cigarettes rise steeply as volume drops.
Source: BIR
Win for Revenues and Public Health
0.0
2.0
4.0
6.0
8.0
10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
Excise Tax Collections on Locally manufactured cigarettes Volume of Removals (B Packs)
0.5 0.5 0.5 0.5 0.82.9 3.5 4.5 5.0 5.0 3.5
12.512.6
35.337.1
43.8
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
National Government Allocation for
Health Insurance Premiums for the Poor
Source: PhilHealth, DOH, GAA
Win for the Poor
$0.01 B$0.01 B $0.01 B $0.02 B
$.06 B $.08 B$.10 B
$.10 B$.11 B $.08 B
$.30 B
$.30 B
$.79 B
$.92 B
$.82 B
$0.01 B
Sin Tax Law increased the
number of people with free health
insurance – from 5.2 million poor
primary members in 2012 to 15.4
million in 2015.
Win for the Young and the Poor
Results of the Smoking Prevalence Study of Dr. Antonio Dans based on National Nutrition Health Survey 2013 and 2015 data:
Prevalence of smoking among adult Filipinos went down from 31.0% in 2008 to 25.4% in 2013, and then to 23.3% in 2015.
There are about 4.0 million less smokers in the country because of the Sin Tax Law.
The drop is partly from people who stopped smoking. It is mostly from people who avoid starting to smoke.
At least 70,000 death have been averted since 2013.
Health benefits were greatest in price sensitive populations – the poor, rural folk, the very old, and the very young.
Smoking Prevalence has declined.
CONCLUDING REMARKS
Sintax Reform has generated US$3.9 billion
incremental revenues in its first three years of
implementation with about 80% accounted for by
tobacco taxes. Indeed, raising tobacco taxes is a
low lying fruit for raising domestic revenues for
health.
Earmarking revenues for health has almost
tripled the health budget over 2012 levels and
allowed the Philippine National Government to
provide free health insurance to the poor and
near poor (bottom 40% of the population).
CONCLUDING REMARKS
Aim high for health. Framing sintax as a health
measure allowed the Philippines to raise tobacco
taxes substantially, than otherwise possible if it
was framed as a revenue measure.
Political support at the highest level is important.
Finance, health and other ministries need to
collaborate and adopt a systems and whole of
government/society approach.
Need to be vigilant and systematically monitor
progress and outcomes.
CONCLUDING REMARKS Excerpt of Speech of President Aquino
during the signing of Sin Tax Law –
“… Many thought it was impossible to pass the
Sintax reform bill: the enemy is strong, loud,
organized, and has deep pockets but, as we
have proven time and again, nothing is
impossible with the Filipino Nation rowing in
one direction, heart in the right place, and ready
to stand up for its principles… ”
THANK YOU