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Editorial

Better than nothing

/ 04:07 AM December 23, 2019

To its credit, Congress has been moving faster in the approval of crucial economic measures, such as the national budget for 2020, certified as urgent by the Duterte administration.

Even the imposition of higher taxes on so-called “sin” products — where lobbying is usually intense — got passed by the House of Representatives and the Senate within an unexpectedly short time.

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Both houses of Congress passed the bill imposing higher excise taxes on alcohol and e-cigarettes, a measure that aims to generate P137.2 billion in additional revenues over the next five years.

Under the reconciled bill approved by the bicameral conference committee, 60 percent of revenues collected from the excise taxes on alcohol products and e-cigarettes such as heated tobacco and vaping products will go to the universal health care program, 20 percent will be spent for medical assistance and health facilities, and the remaining 20 percent will go to programs needed to fulfill the country’s commitments under the United Nations’ Sustainable Development Goals (SDGs).

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However, Finance Undersecretary Karl Kendrick T. Chua, spokesperson for the administration’s tax reform programs, pointed out that the Congress-approved tax rates would raise only P22.2 billion when implemented in 2020, lower than the Department of Finance’s original proposed rates that would have raised P36.5 billion in revenues next year.

Finance Secretary Carlos Dominguez III had warned that since Congress approved lower tax rates than was originally proposed, the government would lack enough funds to implement the universal health care law next year.

Last July, President Duterte signed Republic Act No. 11346, under which the excise tax on cigarettes will be raised from the P35 rate a pack at present to P45 in 2020, P50 in 2021, P55 in 2022, and P60 in 2023, to be followed by a 5-percent annual indexation from 2024 onward.

RA 11346 also slapped new taxes on heated tobacco products and vapes, but the DOF deemed these rates “too low,” hence the updated “sin” tax bill.

The Senate actually approved higher tax rates nearer the proposal of the DOF, but had to agree to lower these to reconcile its version with that of the House, which would have generated only P18 billion on the first year of implementation in 2020. The ratified bill is expected to be signed by the President into law before the end of the year and implemented starting Jan. 1, 2020.

This is not the only problem. Aside from the lower revenues from the approved “sin” tax bill, another concern relating to the required funding for the universal health care program’s implementation in 2020 is being assessed by the DOF.

This is the potential impact on revenue generation of the value-added tax (VAT) exemption of medicines for diabetes, high cholesterol and hypertension starting next year, as well as for cancer, kidney diseases, mental illness and tuberculosis by 2023—a measure approved by Congress together with the higher tax on “sin” products.

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Preliminary government data suggest that the projected revenue loss from this tax break could reach P5.2 billion on the first year of implementation, or a total of P35.1 billion by the end of 2024.

With this, the net incremental revenue of the ratified “sin” tax bill will be only P17.1 billion in 2020 and a total of just P102.1 billion by 2024.The move to raise taxes on “sin” products and unhealthy foods such as sugar-sweetened beverages has laudable objectives other than revenue generation, which is to encourage healthier food and lifestyle choices among the populace.

As Dominguez said, with more prohibitive prices on unhealthy products, Filipinos may eventually get into the habit of eating better, smoking less and drinking less, so that the total cost of universal health care also goes down.

The amount to be raised from the new “sin” tax bill is regrettably less than expected—but it’s still better than nothing.

Congress and the DOF will have to revisit the data and figures in the remaining months and years of the Duterte administration to assess how else to plug the gap, and not leave the beneficiary social services short of funding.

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TAGS: 18th Congress, 2020 national budget, editorial, excises taxes, sin taxes
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