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10 years since the signing of the sin tax law

On Dec. 6, 2022, the Department of Health (DoH), the Philippine Statistics Authority (PSA), and the World Health Organization (WHO) published the results of the 2021 Global Adult Tobacco Survey (GATS).

The GATS, conducted every six years, is the global standard for monitoring the use of tobacco, the substance that remains the leading cause of preventable death around the world. The GATS is a nationally representative survey involving men and women aged 15 and older; in the Philippines’ 2021 GATS, the DoH and PSA selected 20,671 households and 18,708 individuals, with a response rate of around 97%.

The results showed an astounding drop in smoking prevalence. The number of current tobacco users dropped from 28.3% of the population, or 17.3 million Filipinos in 2009, to 23.8% or 16.6 million Filipinos in 2015, and finally to 19.5% or 15.1 million Filipinos in 2021. In the last six years, 2.2 million Filipinos’ lives have been saved from the harmful health hazards brought about by smoking.

What explains this reduction in smoking prevalence? In the past decade, despite the deep pockets and vast network of what is dubbed the “strongest tobacco lobby in Asia,” the Philippine government has successfully adopted game-changing tobacco control policies and initiatives, which positioned the Philippines as a forerunner on the global tobacco control stage.

The most decisive factor that contributed to the reduction of smoking prevalence is the series of sin tax reform laws adopted between 2012 and 2020. The increasing tax rates during the last 10 years have made tobacco products less affordable. The WHO has described increasing tobacco tax and prices as “the least used, but most effective, tobacco control measures to help countries address development.”

The Philippine GATS 2021 showed that higher prices (which were brought about by higher taxes) led smokers to quitting: the percentage of current smokers who attempted to quit in the past 12 months because of high cigarette prices rose to 68% in 2021 from 55.5% in 2015. Thanks to the sin tax reforms, the average monthly expenditure for cigarettes among cigarette smokers (in pesos) almost doubled, from P678.4 in 2015, to P1,273.90 in 2021. The average cost of a pack of 20 manufactured cigarettes increased from P57.70 in 2015 to P107.80 in 2021.

According to the Southeast Asian Tobacco Control Alliance (SEATCA)’s 2021 Tobacco Tax Index1, the Philippines has the second-highest tax burden as a percentage of retail price (71.32%) in the ASEAN region, next to Thailand (78.60%).

The release of the 2021 GATS happens to coincide with the 10th anniversary of the ceremonial signing of the Sin Tax Reform Law (Republic Act 10351) of 2012. This transformative law reformed the old tobacco tax regime. The old tobacco tax regime led to inefficiency and gaming, and Philippine cigarette prices were among the lowest in Asia.

Prior to Republic Act (RA) 10351, the excise tax rates on cigarettes were fixed at old rates based on 1996 prices for legacy brands, stifling competition. RA 10351 shifted the complicated, multi-tiered system to a unitary tax for all brands of tobacco products, regardless of net retail price, to simplify tax administration and to discourage price-sensitive smokers from switching to a cheaper brand. It also imposed a significant increase on excise tax rates for tobacco products, earmarked incremental revenues for health programs including universal health care, and earmarked revenues to support the livelihood of tobacco farmers.

The Sin Tax Reform Law was not just a one-off; its success paved the way for another wave of successful tobacco tax policies passed in 2017, 2019, and 2020. Since 2012, sin taxes have raised funds for our health budget and facilitated the enrollment of indigent Filipinos in our National Health Insurance Program. On average, about half of the total Department of Health budget in the past years was sourced from the incremental excise tax revenues on sin products. Earmarked revenues from sin taxes made up 54% of the 2020 budget for DoH-Office of the Secretary/PhilHealth.

While the sin tax law has succeeded in hitting its revenue and health objectives, as long as Filipinos are smoking, the fight for higher prices of tobacco products continues. In accordance with RA11346, excise tax rates have reached P60 this year. In 2024, however, the only increase will be the automatic 5% adjustment to inflation. Given the current high inflation (5.8% in 2022), the rates must be hiked further to prevent the value of the tax rate being eroded.

Further, we face a large fiscal deficit, as the increase in spending and borrowing during the pandemic have narrowed our fiscal space. A downgrade in our credit rating could happen unless we find sustainable and substantial sources of government revenue.

Our health system also hangs in the balance, as we have yet to implement Universal Health Care across the country, with a funding gap of at least P163 billion, according to the DoH’s Medium Term Expenditure Program (MTEP).

Policies like excise taxes could possibly curb the rising trend in the use of e-cigarettes and heated tobacco products (HTPs) among the youth. GATS 2021 showed that the highest e-cigarette use is among those in the 15- to 24-year-old age bracket.

Our call is for the Executive to adopt sin taxes as a legislative priority, as it is incumbent on them to protect the health of our people, especially young Filipinos, from harmful products such as tobacco. We laud Representative Joey Salceda for filing House Bill 5532, which raises taxes on e-cigarettes and HTPs and introduces new taxes on vaping devices. We call on our leaders in Congress to support this measure.

The proof of the effectiveness of sin taxes is here for us to witness. The data for smoking prevalence, revenues, and health budget among other things, show that sin taxes are efficient and cost-effective, deter smoking, save lives, and relieve our health system of the burden of tobacco-related diseases.

Thus, we have every reason to celebrate the 10 years of the Sin Tax Law. We thank all the stakeholders, and we specially mention the Department of Finance and the Department of Health, and the Representatives and Senators who sponsored the different RAs to make the successive increases in sin taxes serve society’s health and economy.

Pia Rodrigo leads the health policy team of Action for Economic Reforms.

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