‘Sin’ taxes must rise

Legislators are expected to be busy in the next two weeks tackling the issue of whether taxes on so-called “sin” products such as cigarettes and liquor are high enough to discourage smoking and drinking, but at the same time not kill the industries behind them, to allow the government to get funding for its health care program.

Sen. Sonny Angara earlier noted that Congress could still raise levies on “sin” products before the current 17th Congress adjourns sine die on June 7. He admitted, however, that based on the reactions of his colleagues in the Senate, it would be difficult to get approval with the number of days left.

A draft committee report of a bill further increasing the excise tax on tobacco products to  between P45 and P60 a pack starting 2020 is now being circulated for signature in the Senate. Under the draft prepared by Angara’s ways and means committee, the tax on tobacco products will be raised by P10 a pack next year to P45 from the current P35. In 2021, it will be increased to P50 a pack, to P55 in 2022 and P60 in 2023. After that, tax rates will be raised by 5 percent every year starting Jan. 1, 2024.

Last December, the House of Representatives approved its own version of the proposed measure, which provided much lower tax rates: to only P37.50 a pack starting July this year, increasing to P40 in July 2020, P42.50 in July 2021, P45 in July 2022 and increasing by 4 percent a year starting July 2023.

Manufacturers are, of course, against increasing taxes. Last week, Japan Tobacco International’s Philippine unit warned the government that further raising excise taxes would worsen cigarette smuggling. The Department of Finance and the Bureau of Internal Revenue (BIR) last year admitted an increase in illicit cigarette trade in the country after excise taxes were raised under the Tax Reform for Acceleration and Inclusion (TRAIN) Act. But the government countered that it was ready for any increase in smuggling and counterfeiting of cigarettes and tax stamps once higher excise

taxes take effect. Finance Secretary Carlos G. Dominguez III pointed to the so-called “Strike Team” of the Bureau of Customs and the BIR against illicit cigarette trade as being equipped to handle any surge in illegal activities.

Manufacturers and other lobby groups have  also warned that raising taxes would kill the industry and lead to hundreds of thousands of lost jobs, among them the tobacco farmers who rely on their sales to cigarette manufacturers for their livelihood.

Beyond all this, however, is the fact that the government needs additional revenues to fund its health care program, and the administration believes that increasing tax rates on “sin” products is the most logical step to do this. But the revenues to be generated by the House version will hardly cover the funding gap for the Universal Health Care Law recently signed by President Duterte. The government needs P258 billion next year to implement the universal health care program, according to Health Secretary Francisco Duque III. Without higher cigarette taxes, the government can only raise P195 billion in 2020—or a funding gap of P62 billion.

From 2020 to 2024, all current sources of government funding can cover about P200 billion annually or a total of P1 trillion, but the cost of the universal health care program for the period is P1.44 trillion, or a funding gap by 2024 of P426 billion, equivalent to a third of the total cost to implement the health care program, according to government estimates.

Funding for universal health care will only be sufficient if the Senate version is passed into law. The DOH and the DOF were given clear and urgent instructions—tax alcohol and tobacco at higher rates than current levels to fund the universal health care program. This sounds to be both a noble and urgent objective given the patchy state of the country’s public health care system at present, even if it will be at the expense of profitable cigarette manufacturers—whose products, it must be pointed out, significantly contribute to illnesses and other adverse effects that burden public health.