In a recent meeting of the House Ways and Means Committee chaired by Congressman Hermilando I. Mandanas of Batangas, a paper was presented by HealthJustice, a local advocacy group affiliated with the Southeast Asia Tobacc Control Alliance.
HealthJustice Philippines presented the 2010 Tobacco Tax Report Card for the Philippines that once again underscored the prevalence of tobacco use in the country, particularly among 17.3 million Filipinos aged 15 years and above representing 28.3 percent of the population.
Of particular interest is the section citing high cost of tobacco use on the country’s health care system.
According to a World Health Organization study, 200,000 Filipino men would develop smoking-related diseases in their productive years of age. The loss in productivity as well as healthcare for these sick men was estimated to cost Filipino taxpayers some P43 billion.
The Tobacco and Poverty Study, a more recent document, stipulated a higher cost. According to their estimates, the health care cost and productivity losses from death and four diseases related to smoking would be a staggering P148 billion to P314 billion.
The illnesses caused by smoking were identified as cerebro-vasular diseases, coronary artery diseases, chronic obstructive pulmonary diseases and lung cancer. The first two were ranked as contributing the heaviest burden on the health budget.
Aside from the high cost on the Philippine government’s coffers, cigarette smoking presents a considerable expense for the individual smoker. According to Innovations for Poverty Action (IPA), a non-government organization working to reduce poverty, the average surveyed smoker spends approximately P100 a week on cigarettes, or nearly 15 percent of their income.
For a country with a high poverty incidence, smoking – together with alcohol drinking – is a vice that significantly contributes to poor families’ difficulties to improving their lives, and often affect the chances of their children to get out of the poverty rut.
In fact, a growing consumption trend in low priced cigarettes has been monitored by government, presumably affecting the lower income segment of the population. This is a sign of more tobacco-related deaths and diseases, as well as other socio-economic implications.
Rightly so, IPA has identified cigarette smoking as one personal expense that could best be transformed into savings. Interestingly, they have this voluntary commitment savings program called CARES (Committed Action to Reduce and End Smoking).
Ongoing in the southern part of the country, the program not only inspires individuals save but also assists smokers achieve their commitment to quit. Successful participants get their savings on the condition that they pass a nicotine test at the end of a pre-determined time period.
Declining tax revenues
Going back to the Philippine Tobacco Tax Report Card, aside from stating the growing health problem and cost associated with increasing number of cigarette smokers in the country, the document took to task the declining trend in the contribution of tobacco taxes on government revenues.
Accordingly, the report stated that tobacco taxes reached the highest percentage of about 4 percent of total government revenue collection in 2001 and 2002 but significantly dropped in 2007 to only about 2.5 percent.
While the general slowdown in the economy was partly to blame, a lot of grief also came from the effect of the Sin Tax Law of 2004, a four-tier excise tax system currently in effect for cigarettes.
The report describes that the current cigarette excise tax as a percentage of gross retail price ranges from 14 percent to 42 percent based on 2010 prices. This is way below the rate of 65 percent to 80 percent that is recommended by the World Bank.
Against the backdrop of a continuing increase in tobacco consumption, coupled with a reduction in the percentage share of tobacco tax collections vis-à-vis the increasing government budget due to tobacco-related illnesses, HealthJustice was very specific about its conclusions and recommendations.
First, according to the advocacy group, the government should simplify the current tax system by adopting a single rate for all tobacco products. Removing the many tiers and classifications will allow easier administration of the tobacco tax system, and will not provide an incentive for manufacturers and importers to misclassify.
Secondly, there is a need to impose a higher rate of excise tax on tobacco to reduce consumption while at the same time, ultimately causing a decrease in health costs.
Third, government must index tobacco excise taxes to the general level of inflation or the consumer price index for all products. This is to ensure that the industry’s contribution to revenue collections will increase at proportionate pace.
And lastly, the report called for the removal of protection to locally produced brands existing in the market since 1996.
The lobby against the restructure of tobacco taxes continues to be strong, with its main arguments centered on what the industry refers as the death of tobacco farmers, mainly based in the Ilocos region and more compellingly, that an increase in tax rates will result in lower consumption, and therefore, reduced tax contribution to the national treasury.
On the first argument, perhaps now is an opportune time to shift our tobacco farms to food production, and to introduce and encourage our tobacco farmers to try planting other food crops that will earn them better incomes.
Corollary to this is the need to review the incentive givens to local government units linked to tobacco leaf production. This only acts as a deterrent for LGUs to support the development of alternative farms other than tobacco plantations.
On the second score, if lower tax rates will lead to diminished consumption of tobacco, at the end of the day, there will be less money needed to treat tobacco-related diseases. I think this is well and good.
Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at email@example.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.