What ‘sin taxes’ are all about

Among the claims made by those opposed to the “sin tax” proposal of Rep. Joseph Emilio Abaya is that increased taxes on tobacco products, mainly cigarettes, will harm small tobacco farmers.

But a study by the NGO Action for Economic Reforms shows that in fact the added taxes on tobacco will in the long run benefit the farmers. Tobacco-growing is already a “sunset” industry, with worldwide demand for cigarettes falling due to decades-old studies that have proven a very strong link between smoking and lung disease, cardiovascular complications (heart attacks, strokes), and different forms of cancers. According to the Bureau of Agricultural Statistics, erstwhile tobacco farmers have already shifted to other crops. From 1990 to 2010, land area devoted to tobacco farming has shrunk from 63,200 hectares to 29,707 hectares.

And if, as some claim, higher taxes on cigarettes will result in further dampening of demand, it’s not as if the farmers will have no other options but starvation. Farmers can shift to other crops without much difficulty. Studies have shown that tobacco land can be used to grow crops like vegetables, peanuts, corn and mung bean. And the earnings of farmers from vegetable cultivation, such as pepper, bitter gourd (ampalaya), onion, tomato, could be much higher compared to what they used to earn from Virginia tobacco.

Perhaps to cushion the short-term loss in income for the farmers, HB 5727 has also earmarked 15 percent of the incremental revenue from the tobacco excise tax to be used exclusively for alternative livelihood programs for tobacco farmers and workers, to be carried out by the Department of Agriculture.

Besides, the situation in the tobacco industry today is that a virtual monopoly (with the merger of Philip Morris and Fortune Tobacco) has enjoyed unprecedented power over the fate of the farmers.

As with any monopoly, the company has been able to dictate the price of tobacco, with the price of a kilo of tobacco falling from P95 before the merger, to P73 after the merger, a 23 percent decrease. With the expected entry of other firms should the bill be passed, farmers would gain further control over their crop, increasing their bargaining power as they are able to sell to more than just one buyer.

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One other argument raised is that by increasing taxes on cigarettes and liquor, the government would end up encouraging more smuggling.

But as the AER reasons, smuggling flourishes mainly because of corruption among the agencies tasked to control it, foremost of which is the Bureau of Customs. “Many countries, such as Singapore, Canada and Sweden, have significantly increased tobacco taxes without experiencing changes in (the rate of) smuggling.

Explains the AER: “The Philippines has one of the lowest prices of cigarettes in the Asean region. Smuggled cigarettes are far more likely to continue flowing out of the country, rather than into the Philippine market.”

Smuggling—and not just of cigarettes—can also be curbed by means of legal and institutional reforms. Among the measures the Aquino administration and the Bureau of Internal Revenue have committed to implementing are: prominent tax stamps and serial numbers; special package markings; improving corporate auditing; better tracking systems; and good governance.

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OPPONENTS of the Abaya bill can’t seem to make up their minds whether increased taxes are useless because they won’t have much impact on demand and use of products like cigarettes (and will instead encourage smuggling); or that the “sin taxes” would spell catastrophe for the tobacco industry and drive tobacco farmers to penury.

But they seem to have conceded by now the public health implications of reduced tobacco consumption.

To recap: From around 500 to 800 Filipinos contract smoking-related lung cancer and lung and heart diseases daily. About 240 Filipinos die every day due to smoking-related diseases. Seven out of the 10 leading causes of mortality are smoking-related.

The “economic burden” due to health costs and productivity losses of only four smoking-related diseases amount to P148 billion-P314 billion yearly.

But what’s especially sad is that, according to public health experts, “the young and the poor are greatly disadvantaged when they smoke and drink.” The younger an individual starts smoking and/or drinking, the worse the health impact is. Indeed, say doctors, “the young population needs the most protection from picking up these vices.”

And yet, pay close attention to advertisements for liquor and promotional programs of tobacco companies and you will note a deliberately targeted campaign to reach young people. Jingles for gin, beer and brandy use youthful bands and current music trends. While tobacco companies sponsor rock concerts and athletic events.

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EVEN more tragically, say health experts, is that the poor smoke and drink more than the rich do in this country. “Poor people also have the least capacity to get needed health care when they get sick due to smoking- and alcohol-related diseases, and are the most vulnerable to chronic poverty when they experience health shocks due to these vices. Moreover, the poorest households spend for tobacco and alcohol more than they spend for education or health care.”

The decision to start smoking and/or drinking is of course a personal and voluntary one—nobody is actually coerced into taking up these bad habits, unless we take into account social pressure backstopped by advertising and the media. But the habit is reinforced and sustained by the addictive quality of liquor and nicotine.

Should the government stand idly by while millions of addicted Filipinos suffer ill-health and gnawing poverty, while a few rake in billions from such cynical exploitation?

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