Health, revenue, fairness (1)

On Dec. 21, Congress closes down for the year. That’s the day when the sin tax law must be voted upon. By Jan. 21, when Congress resumes, politicians will be consumed by thoughts of winning again. And raising taxes is not a way to win votes. So it must be now.

And it must be the administration or, at worst (note “at worst”), the House bill of Jun Abaya. The Senate bill that came out of the ways and means committee is totally unacceptable. It’s capitulation to the cigarette industry disguised in platitudes of “good intentions.” It’s nothing of the sort, and the President must step in now and make his sensible wishes very, very clear. It’s a matter, literally, of life and death, the unnecessary death of 90,000 Filipinos annually (or 240 daily). It’s not about the livelihood of a few farmers, but the life of Filipinos.

So much has been written, much of it passionate, some of it ever so clearly biased to suit vested interests (read Malaya sometime). Let me try and bring the whole thing into proper perspective by reviewing the issues raised to date, in as factual a manner as I can.

It all hangs around three things: health, government revenues, and fairness. For me, the most important by far is health. Smoking isn’t just “dangerous to your health,” it kills. There have been more than enough reputable, independent studies done to confirm this. And some of the more responsible governments in the region—such as those of Singapore, Malaysia, Thailand and Vietnam—have mandated the warning “SMOKING KILLS” on cigarette packs, even required gruesome pictures of the harm done. So how can any politician not want to stop this pernicious habit if he/she has the power to do so? Does he/she want Filipinos to die? Is that a way to reduce the population rather than pass the RH bill?

Governments can ban smoking, but none has because it’s seen, rightly, as an infringement on a citizen’s freedom to choose, an imposition on the free market that democracies are built upon. And prohibition never works, only leads to crime. So they do it another way: They raise prices. Marlboro sells for P32 a pack here. Look what it sells for elsewhere: Singapore (price of pack of 20s: $8.30, increase over Philippine price: 1,217 percent); Malaysia ($3.32/pack, 427 percent); Thailand ($2.36/pack, 275 percent); Brazil ($2.16/pack, 243 percent); India ($1.83/pack, 190 percent); Egypt ($1.53/pack, 143 percent); Indonesia ($1.24/pack, 97 percent); Cambodia ($1.19/pack, 89 percent); Vietnam ($0.96/pack, 52 percent); Philippines ($0.63/pack).

If the original Abaya bill is passed, Marlboro would cost P60, or $1.44, putting it still at the low end of the pack in our neighborhood. In the United States, Marlboro costs $15, in Australia $15.40—two of the more enlightened countries on looking after their people’s health. The Philippines is obviously out of step with the world; it is living on distorted taxes set 16 years ago (1996) with lower-than-inflation increases (up 88 percent versus 120 percent inflation).

Have high prices worked? Yes. In the United States when federal taxes were raised from 39 cents to $1.01 per pack to expand health care for children, 3 million people stopped smoking, yet the government generated $30 billion more in tax revenues. Smoking by young people, the ones we most want to stop, fell 10 percent to 13 percent and other smokers smoked less. Thailand has also been successful in raising revenues after adopting a unitary tax structure in 1990. The price of a cigarette pack in Thailand is now five times its price 20 years ago, and revenues have grown almost fourfold.

It worked, health was protected, government got more money.

The best thing is it deters the people we’d most like to save: the kids. Young people have limited money. So people smoke less or don’t smoke when prices are high. According to Department of Health estimates, smoking-related illnesses cost the economy some P177 billion last year in the form of healthcare costs, productivity losses, and premature deaths. That money could have been used to raise the abjectly low salaries of government employees by a fifth. Maybe they’d then not be so tempted to ask for “transaction fees.”

Recent articles say the DOH shouldn’t be given more money because it can’t spend all the money it’s already given. Have you ever heard such nonsense? Everyone agrees the Philippine health service has to be massively expanded and improved.

As to revenues, studies have conclusively shown that raising prices raises revenues even with the fall in volume. In our own study that measured the impact of the earlier proposed sin tax bills, results showed that additional revenues can reach as high as P68 billion. Even though volume falls, total revenue rises; the examples mentioned earlier confirm this.

The government is desperate to achieve an investment level credit rating, and rightly so. If that level is granted, the Philippines will enjoy lower rates when borrowing abroad and a signal will be sent to investors that this is a safe place to invest. We get jobs created. International credit rating agencies have been monitoring the progress of sin tax reforms, for the revenue-generating impact and message that this is a government making tough decisions and doing the right thing is necessary if they are to upgrade. Choosing the bill to pass will be a crucial decision.

The Department of Finance estimated an additional P60 billion into government coffers if the original Abaya bill (HB 5727) backed by the administration passed into law, or P30 billion in the case of the amended version that the House passed. Sen. Ralph Recto’s recommendation would have given a miserable P15 billion. It’s a relief this is now out the window. Let’s hope Sen. Frank Drilon moves quickly to issue a new, more responsible committee report. I feel sure he will. More next week