MAKING SIN TAX REFORM HAPPEN: THE PHILIPPINE EXPERIENCE
PRESENTED BY:UNDERSECRETARY JEREMIAS PAUL, JR.DEPARTMENT OF FINANCE
World Bank Human Development WeekWashington, D.C., February 6, 2013
Outline of Presentation
I. BackgroundII. Rationale for ReformIII. Features of R.A. 10351IV. Key Success FactorsV. Concluding Remarks
BACKGROUND Philippines is among the top smoking
countries in Southeast Asia. Strongest tobacco lobby in Asia. Cigarette taxes and prices are among
lowest in the world. Smoking is the no. 1 preventable risk
factor for premature death. Economic burden of smoking dwarfs
revenues collected from cigarette excise taxes.
Annual cost of smoking to economy – Php 177 Billion
RATIONALE FOR REFORM To help finance PNoy’s Universal Health Care
Program (UHCP). To simplify the current excise tax system on
alcohol and tobacco (A&T) products and fix long standing, structural weaknesses:
Remove price/brand classification freeze Reduce no. of tiers, preferably to one. Make tax system more buoyant by
indexing tax rates to inflation. Address public health issues relating to
alcohol and tobacco consumption.
FEATURES OF R.A. 10351 Removal of price/brand classification freeze. Gradual shift to unitary taxation. Annual indexation of excise tax rates. Funding of Universal Health Care. Additional funding for tobacco farmer’s
livelihood support. WTO compliance on distilled spirits. Adherence to WHO FCTC Commitment on
cigarettes. Generation of revenues for government.
KEY SUCCESS FACTORS Focus on Health Political Support at the highest levels Constructive engagement with
stakeholders Just-in-time analytical support Strategic communications Effective use of strategy and tactics
Focus on Health Importance of framing reform in
terms of health aspects. Broad-based political support for
Universal Health Care. Ultimate response to critics of sin tax
reform: “This is a health measure.” Politicians do not want to be seen as
being against health.
Political Support Unwavering support from President Aquino Unqualified support from Chairs of Ways &
Means Committees in Congress: Congressman Ungab and Senator Drilon
Support from leadership of League of Mayors and League of Governors
Cooperation among Executive Departments, e.g. DOF, DOH, DBM, DA, OP, BIR etc.
Constructive Engagement with Stakeholders
Importance of listening and reaching out.
Health advocates were critical partners.
Dialogue with industry players and other affected stakeholders.
Disclosed both negotiable and non-negotiable reform parameters. Need to be firm while maintaining flexibility.
Just-in-time Analytical Support Importance of evidence-based research
and scenario modeling. Analytical support from World Bank,
WHO, IMF and academe. Usefulness of knowledge portals on
tobacco control available in the Internet. Constant vetting of analytical results. Is a necessary but not sufficient
condition.
Strategic Communications Grounded on evidence-based research. Importance of issues being
communicated and understood by the “man on the street”.
Coordinated messaging but decentralized implementation.
Focused on health aspects and how sin tax reform can generate more revenues while saving more lives.
Effective use of strategyBegin with the end in mind.Choose your battles.Becomes more important in the context of budgetary constraints.
How to beat a protagonist with deep pockets.
CONCLUDING REMARKS No single success factor. It is a
confluence of many. Sin tax reform is not only a revenue
and health reform measure. It is also, more fundamentally, a good governance measure.
We cannot be complacent. We need to ensure effective implementation of reforms.
THANK YOU!
The poor smoke more and have less access to health care
High incidence of smoking is highest among the poor – WHS and DHS DATA
Female smokers (DHS 2003) Adult smokers (WHS 2003)0
5
10
15
20
25
30
35
40
45
Lowest quintile 2 34 Highest quintile
Bad access to health care when ill from tobacco- and other - illnesses
Used outpatient care in last year Used inpatient care in last year0
5
10
15
20
25
30
35
40
Poorest quintile 2 34 Wealthiest quintile
Low cigarette taxeskeep cigarettes affordable
Prices are low internationally
As % of GDP
IF REFORMS NOT INSTITUTEDExcise tax collections of alcohol and
tobacco as a % of GDP will continue to decline
0% 13%100%200%225% 267%300%400%500%% Increase in Excise Tax19.0519.8625.2631.4733.0235.6337.6843.8950.09Average retail price (PhP)
28.230.7 0.14
4
25.431.00.00
0
45.4 29.3 0.92
28
62.6 28.0 1.62
48
73.1 27.2 1.99
60
78.0 26.9 2.16
65
106.0 25.4 2.95
89
92.4 26.1 2.59
78
66.5 27.7 1.76
53
28.1 30.7 0.17
5
44.1 28.8 1.15
35
59.5 27.2 2.02
61
68.7 26.3 2.49
75
72.9 25.9 2.70
81
96.5 24.0 3.69 111
85.1 24.9 3.24
97
63.0 26.8 2.20
66
28.0 30.60.20
6
42.9 28.4 1.38
41
56.6 26.4 2.42
73
64.5 25.4 2.99
90
68.2 24.9 3.24
97
87.7 22.6 4.43 133
78.4 23.7 3.89 117
59.7 26.0 2.64
79
3.78 27.9 30.5 0.24
7
41.7 28.0 1.61
48
53.8 25.7 2.83
85
60.6 24.4 3.49 105
63.6 23.9 113
79.5 21.3 5.16 155
72.0 22.4 4.54 136
56.4 25.2 3.09
93
27.8 30.5 0.27
8
40.6 27.5 1.84
55
51.2 24.9 3.23
97
56.8 23.5 3.99 120
59.3 22.9 4.32 129
71.9 19.9 5.90 177
66.1 21.2 5.19 156
53.4 24.3 3.53 106
Excise Tax Revenue (PhP B)Smoking Prevalence (%)Smoking Quitters (Millions)Deaths prevented (thousands)
Elasticity = -0.4
Excise Tax Revenue (PhP B)Smoking Prevalence (%)Smoking Quitters (Millions)Deaths prevented (thousands)
Elasticity = -0.5
Excise Tax Revenue (PhP B)Smoking Prevalence (%)Smoking Quitters (Millions)Deaths prevented (thousands)
Elasticity = -0.6
Excise Tax Revenue (PhP B)Smoking Prevalence (%)Smoking Quitters (Millions)Deaths prevented (thousands)
Elasticity = -0.7
Excise Tax Revenue (PhP B)Smoking Prevalence (%)Smoking Quitters (Millions)Deaths prevented (thousands)
Elasticity = -0.8
25.431.0 0.00
0
25.431.0 0.00
0
25.431.00.00
0
25.431.00.00
0