21 November 2022
By Luisa Maria Jacinta C. Jocson, BusinessWorld
TOBACCO TAXES of at least 75% of the retail price should be devoted to financing sustainable development programs, according to the United Nations Development Programme (UNDP).
“Additional revenue and fiscal space generated through higher tobacco taxes would help governments raise resources to meet various social and economic needs, such as increasing COVID-19 (coronavirus disease 2019) vaccination coverage, enhancing social protection measures and strengthening health systems to protect poor and vulnerable people and build resilience against future pandemics,” the UNDP said in a policy brief.
Increasing tobacco taxes and prices is “one of the least used, but most effective, tobacco control measures to help countries address development needs.”
“It costs relatively little to implement but yields a high impact in terms of increased supply of labor, higher productivity and lower future health expenditure,” it added.
According to the policy brief, tobacco taxes should be raised sufficiently high or towards the recommended level of at least 75% of the retail price, inclusive of an excise component of at least 70%. It should also feature periodic increases to outpace growing income and inflation, with the goal of suppressing affordability over time.
“It is critical to ensure that tobacco tax increases are translated into higher prices by monitoring and regulating manipulative pricing strategies by the tobacco industry,” it added.
The report also found no or limited negative consequences of tobacco tax increases on employment.
“Studies show that over time there is likely a net gain rather than a loss in employment in nearly all countries that raise tobacco excise rates,” the UNDP said, citing the World Bank.
“Jobs lost as a result of higher tobacco taxes will eventually be offset by new jobs created in other sectors; the money not spent on tobacco products will be spent on different products and services; and additional tobacco tax revenue will increase government investment. Both pathways will create employment opportunities and facilitate economic diversification,” it added.
It noted that countries considering significant tobacco tax increases should implement complementary measures to support affected workers during their transition to non-tobacco sectors and during the time of income loss.
Support measures include, for example, skills building, loans with favorable terms, technical assistance for crop diversification, and temporary cash transfers.
The UNDP said that strengthening governance over tobacco controls is a “critical determinant of implementing bold pro-poor tobacco tax policies.”
“The pro-poor impact of tobacco tax can amplify even further if tobacco tax revenue is allocated to measures that disproportionately benefit the poor such as universal health coverage and tobacco cessation support,” it added.
The report described the Philippines as “globally renowned” for its pro-poor and pro-development tobacco tax policies.
Between 2012 and 2020, the Philippines introduced tobacco and alcohol tax or “sin” tax reforms to fund pro-poor initiatives, made possible by substantial and sustained excise tax increases.
Revenue from sin taxes hit P332.3 billion in 2020 and is expected to hit at least P480 billion by 2024, according to estimates by the Department of Finance (DoF).
Sin tax reforms contributed to the improvement of the debt-to-gross domestic product ratio before the pandemic, the rise in sovereign credit ratings, and expanded coverage for health insurance for the poor.
Economists said that taxing tobacco products can stimulate economic growth, boost support for social protection programs, and mitigate health risks.
“This would be one good way to help boost revenue while at the same time providing a disincentive to use tobacco which could improve overall health,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.
“Tobacco taxation is a possible source of government revenue but the acceleration of sustainable development goals progress will depend on how the tax revenue will be redistributed to the people,” John Paolo R. Rivera, an economist at the Asian Institute of Management, said in a Viber message.
Leonardo A. Lanzona, an economics professor at the Ateneo de Manila University, said that imposing taxes on tobacco may be insufficient to fund social programs and paying down national government’s debt.
“One needs to consider that these taxes were already in place even before the Marcos administration. To raise it some more can reduce the consumption of these products given the current economic slowdown. Much of the revenue previously from these sin taxes originate mostly from the lower and middle income individuals. To further increase these taxes would only leave the upper income individuals to consume these products. These may not be enough for the government’s budgetary requirements,” Mr. Lanzona said in an e-mail.
“The government needs to consider imposing fixed income taxes on large corporations and rich individuals to raise the funds needed. Apart from not causing any distortionary effects on output, this addresses the increase in inequality resulting from the pandemic,” he added.
Meanwhile, the Bureau of Internal Revenue last week issued amended guidelines and floor prices for vaporized nicotine and non-nicotine products or novel tobacco products.
“The minimum retail price (takes) into account the sum of the excise tax, value-added tax (VAT), and a reasonable production cost,” the BIR said in a revenue regulations circular.
The BIR set the floor price for a pack of heated tobacco products of P140 assuming a production cost of P95, with an excise tax of P30 and VAT P15.
For vapor products, a 0.7 milliliter (ml) pod of nicotine was set a floor price of P131.04. For the 1.8 ml pod, the floor is P306.88, and for 1.9 ml, P318.08.
Conventional freebase or classic nicotine was set a floor of P207.2 for 15 ml and P352.8 for 30 ml.