The ‘Sin Tax’ Bill: Promoting the Nation’s Health and Plugging Lucio Tan’s Loophole for Legal Tax Evasion

The Philippines has scandalously low taxes on two commodities that have been proven killers of individuals, destroyers of families, and threats to national economic security: cigarettes and spirits.

Smokers’ Nirvana

The current multi-tiered tax system has made cigarettes so much cheaper in the Philippines than in other countries.  A pack of the most popular foreign-brand cigarettes costs on the average P27.72 in the Philippines, compared to P365.2 in Singapore, P146.08 in Malaysia, P104.84 in Thailand, and P64.68 in Indonesia.

The reason cigarettes are so cheap in the Philippines is that excise taxes on them have not been indexed to inflation and the classification of the different brands remains what it was in 1996.  For instance, Fortune and Champion, two brands, continue to be classified as “low price” and taxed at P2.72 per pack, whereas they should now be classified as “premium” and taxed at P28.30 per pack.  Likewise, Hope and Winston are classified as “medium” and taxed at P7.56 per pack instead of being reclassified as premium and taxed at P28.30 per pack.

The biggest beneficiary of the current, unreformed system is the merged conglomerate of Lucio Tan’s Fortune Tobacco and the transnational firm Philip Morris, which has controlled some 95 per cent of market over the last 15 years.  This conglomerate represents the worst of all possible worlds for health advocates, proponents of equitable tax reform, and groups seeking corporate accountability: a transnational alliance headed by a notorious tax evader engaged in the production of a deadly commodity that is being squeezed out in other parts of the world by rising global health consciousness.  In essence, the current excise tax system governing tobacco and alcohol constitutes a mechanism for legal tax evasion by Lucio Tan and his transnational partners.

The Costs of the Unreformed System

The failure to reform the excise tax has allowed the tobacco monopoly to keep prices artificially low while reaping billions of pesos in profit at the expense of national health.  The smoking prevalence rate for the Philippines is 28.3—meaning nearly 30 per cent of the population smokes.  Comparable rates are 13.6 for Singapore, 20.7 for Thailand, and 21.5 for Malaysia.   The Philippines now ranks 9th in the work in terms of the adult male smoking population and 16th in the adult female smoking population.  From 2003 to 2007, there was a staggering 40% increase in the youth smoking prevalence to 27.3%.

Tobacco is a killer, but it kills off proportionally more of the poor than the rich.

300,000 people now die yearly from smoking-related diseases, and the majority of them come from the poor.  This is not surprising since four out of ten of the poorest 20 per cent of Filipino adults are current smokers, compared to one out of four of the richest 20 per cent who smoke regularly.

Liquor has also been kept artificially cheap by low excise taxes and outdated classification. 50% of road accidents is due to drunk driving deaths.  Alcohol consumption is estimated to cause from 20% to 50% of liver cirrhosis, epilepsy, poisonings, violence and several types of cancer.  2.5 million people die annually from harmful alcohol use; this comes to 4 per cent of all deaths.

Components of the Sin Tax Bill

The long overdue revision of the excise taxes on alcohol and tobacco products HB 5727—the so-called “Sin Tax Bill”–will be debated on the floor of the House of Representatives in the next few days, with its proponents seeking approval of the bill on final reading by the time the body adjourns its second session of the 15^th Congress ends on June 6.  The bill will increase tax rates on tobacco and alcohol products, adopt a simplified tax system for these products, index the taxes to inflation, and remove the freeze on price classifications.

Under the bill, for instance, the tax on cigarettes packed by machine will rise from P2.72 to P12 per pack.  This will create a massive disincentive to smoking, especially among the youth who are at an age when they are most vulnerable to seduction by the tobacco industry but still lack the means to support this habit.

According to the Action for Economic Reform (AER) and other advocates, the bill, if passed, will generate P33 billion in new revenue annually.  Part of the income stream will finance the expansion of the Universal Health Care Program (UHC), so that it can provide better health care services, especially for poor Filipinos.   The added funds will contribute significantly towards alleviating the smoking-related disease burden that was estimated at P177.2 billion in 2011.

Disinformation by the Tobacco Lobby

In its effort to prevent the so-called “Sin Tax” bill from becoming law, the tobacco industry has spread a lot of misinformation about the effects of the bill on workers and tobacco farmers.   But, according to AER, there are relatively few workers left in tobacco manufacturing, which is becoming more and more capital intensive in production technology.  As for tobacco farmers—many of them in the so-called “Solid North” of the country—the prices they have been getting for their product have been dropping owing to the monopoly control of the industry, leading many of them to shift to more profitable crops than tobacco.  To ease their transition to other crops, farmers will get earmarked funds equivalent to 15 per cent of the incremental revenues from tobacco taxes that will be devoted to safety nets and alternative livelihood projects.

The winners are many should the Sin Tax Bill pass:  the nation’s health, the economy, youth, the poor, the future.  The losers are a handful of dubious characters:  Lucio Tan and his transnational corporate buddies.  The choice confronting our legislators is clear.

*INQUIRER.net columnist Walden Bello represents the party Akbayan in the House of Representatives.