World Bank paper notes sin tax gains, but says more work necessary on health component

18 July 2016

“OPEN and systematic monitoring” will be critical to the success of the Sin Tax Law, a World Bank working paper reported as it flagged information gaps that need plugging.

This was among the recommendations set forth by the paper “Sin Tax Reform in the Philippines: Transforming Public Finance, Health, and Governance for More Inclusive Development.”

The paper noted that “monitoring awareness of health insurance coverage, changes in health care utilization, and health spending is important.”

Besides an annual review of the monitoring framework and the need to take early action on data gaps, the paper also listed six other recommendations:

• Ensure the continued success of the tax stamp system coupled by the enhanced oversight of the tobacco industry;• Ensure the poor and near-poor are informed of their entitlement to free health insurance and provide health insurance cards;

• Strengthen the Philippine Health Insurance Corp.’s actuarial capacity and institutionalize a rolling three-to-five-year Medium-Term Expenditure Framework in the Department of Health (DoH);

• Design health awareness campaigns to combat smoking and excessive drinking;

• Enhance budget and spending transparency and accountability in tobacco-growing regions financed by “sin tax” earmarks, and;

• Sustain a broad coalition of civil society and continue legislative engagement and support.

The paper — authored by senior economists Kai Kaiser, Caryn Bredenkamp, and Roberto Iglesias — said the first three years of implementation of Republic Act No. 10351 were a “success.”

It noted that the price of the cheapest cigarette brand had increased by more than 50% while “sin tax” revenues doubled in terms of share of gross domestic product. In terms of enforcement, 95% of cigarette packs have been stamped with holographic tax stamps while the Bureau of Internal Revenue (BIR) has taken legal action on tax evasion in the sector.

Meanwhile, smoking prevalence has fallen to 25%, according to the most recent Social Weather Stations survey commissioned by the DoH in 2015. Comparably, the figure was 30% in 2011 and 29% in 2012, before implementation of the law began.

The paper also noted that the DoH’s budget tripled in three years, and the poorest 40% of the population, as well as senior citizens, have started receiving health insurance.

But the paper noted that initial implementation and monitoring challenges are likely to emerge.

It pointed out that outcomes in areas such as smoking prevalence and access to health services are subject to both “an effect lag and a measurement lag.” This meant that “the impact will only be fully captured by the results framework in later years.”

On the other hand, it noted that third-party efforts and data collection innovations are “already helping” where official systems have not been able to monitor promptly.

“In light of the historical weaknesses of administrative data in the Philippines, ex-ante efforts were needed to put in place additional data collection mechanisms to ensure that data for an evidence-based dialogue would be available down the line, whether from official or third-party sources,” the paper read.

The government began implementing the law in 2013, and the BIR has consistently exceeded its excise tax collection targets.