On 'sin' taxes

The global Adult Tobacco Survey (GATS), which was done in the Philippines barely a year ago, showed that among adults 15 years and older, 28.3 percent were current tobacco smokers, representing 17.3 million Filipinos.

Of these 17.3 million Filipino smokers, some 22.5 percent or approximately 13.8 million, smoke everyday. On the average, daily smokers puffed 10.6 cigarettes a day, GATS showed. Men smoked an average of 11.3 sticks, while women smoked 7 sticks a day.

GATS further revealed that the monthly average cigarette expenditure in the country is P326.40 among manufactured cigarette smokers. Men spend an average of P339.20 each for cigarettes monthly, while women shell out P232.80.

Governments, including that of the Philippines, have slapped excise taxes on “sin” products like tobacco and alcohol, not only to curb use but also to raise additional revenues.

This is because global institutions like the World Health Organization (WHO) point to a correlation between cigarette prices and smoking, most especially among the young and the poor. Higher taxes translate into higher cigarette prices, which discourage people, especially those in low- and middle-income economies like the Philippines, from continuing their vice.

This is the reason why Republic Act 9211, which regulates the Philippine tobacco industry, provides for, among others, a 2.5 percent of excise tax collections from tobacco, cigars and cigarettes going to the National Health Insurance Program (NHIP).

There is also a clamor from some sectors for the government to collect the right amount of excise taxes to truly achieve the purpose for which these kind of taxes were designed.

As stated in the WHO’s 2010 Technical Manual on Tax Administration, “targeting revenue from tobacco taxes to other health programs for the poorest socioeconomic groups could produce double health gains — reduced tobacco consumption combined with increased access to and use of health services.” 

“For countries, particularly low- and middle-income countries where health coverage is low, tobacco excise tax revenues — earmarked or dedicated, depending on political support — can provide an important source for much needed expenditure on health,” the manual likewise noted.

The WHO manual further pointed out that “growing evidence clearly shows that as taxes on tobacco products increase, a significant number of premature deaths will be averted as youth are deterred from taking up tobacco use and adult users quit, leading to substantial reductions in the health and economic burden caused by tobacco use.”

Citing India as an example, the WHO manual pointed out that nearly one million people are expected to die prematurely from a disease caused by smoking by the early 2010s, which include deaths from causes such as heart disease, cancer, respiratory diseases and tuberculosis.

But research shows that increasing taxes on cigarettes in India by only 10 percent would reduce cigarette consumption by 3.4 percent in rural India, particularly among the youth. Price increases on cigarettes through increased taxation would avert two million premature deaths among current smokers in India, and an additional 1.6 million premature deaths among the youth who will be deterred from smoking.

Launched in 2007, GATS was initially implemented in the Philippines and 13 other countries where more than half the world’s smokers live and that consequently bear the highest burden of tobacco use. The other countries covered by the GATS are Bangladesh, Brazil, China, Egypt, India, Mexico, Poland, Russian Federation, Thailand, Turkey, Ukraine, Uruguay and Vietnam.

The Philippine GATS was done among non-institutionalized men and women aged 15 years and older to produce internationally comparable data on tobacco use and tobacco control measures.

GATS was conducted jointly with the Department of Health (DOH) and the National Statistics Office (NSO), with technical assistance from WHO and the US Centers for Disease Control and Prevention (CDC) plus financial aid from the Bloomberg Initiative to Reduce Tobacco Use.

GATS noted that in the Philippines, indirect taxation had gained prominence as a large and stable source of revenues with the share of value added taxes increasing from 15 to 22 percent in the last seven years while the share of excise taxes, which is the form of taxation on tobacco and alcohol products, declined from 15 percent to nine percent in the same period.

WHO’s technical manual on tobacco tax administration has pointed out that “strong tax administration is a requisite for ensuring high compliance effectively and administering tax policies efficiently. Good tax administration requires strong technical capacity supported by a well-designed tax.” 

There is now a growing debate over whether or not the Philippines should adopt a technology that proposes to plug alleged loopholes in the collection of taxes on tobacco products.

Swiss firm Sicpa has proposed the adoption of a stamp trace system. Specifically, it will put sensors and strip stamps in all cigarettes and cigar packs along with monitoring scanners to electronically transfer data on tobacco production, reduces the risk of using counterfeit stamps and efficiently track and trace the manufacture of cigars and cigarettes in order to enforce tax laws more efficiently.

Sicpa claims that it can raise over P100 billion in just seven years via this system of tracking down the production and distribution of locally produced cigars and cigarettes.

But the technology does not come cheap. And there is doubt as to the basis for claiming that there is massive smuggling of cigarettes and that excise tax collections can be raised by that much.

It’s about time that a serious study on the efficiency of our excise tax collection system be made.

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