Insidious attempt to subvert tobacco tax law

Supporters of the reformed Sin Tax Law are now concerned about what appears to be an attempt to create an opportunity through a legislative act to amend surreptitiously the Sin Tax Law and erase the gains achieved.

Sneaking through the backdoor in an attempt to rescue themselves from dwindling sales and profits, some members of the domestic tobacco industry are backing the proposal to dictate minimum cigarette prices (MCP) purportedly to discourage smoking among the youth.

This move is seen as opening a Pandora’s box and paving the way for an amendment of the present tax structure for cigarettes and tobacco.

The MCP is embodied in a bill authored by Rep. Eleandro Jesus F. Madrona (lone district of Romblon), and is premised on claims the current Sin Tax Law or the Excise Tax Reform Law of 2012 has failed to considerably reduce smoking incidence especially among the youth.

Madrona cited a survey by the Social Weather Station (SWS) that revealed no significant decrease in overall smoking incidence as a result of the sin tax law even if there was a reduction in cigarette consumption in some socio-economic classes and age groups.

According to the survey too, 45 percent of smokers merely switched to cheaper brands when the taxes on cigarettes were increased.

The MCP bill seeks to set a price of P38 per pack for the cheapest cigarette on the first year of implementation, then raising this to P44 the second year, P51 on the third year, and increasing by four percent on each succeeding year.

According to Madrona, the proposed law would also be able to discourage smuggling that is currently seen as the cause of a flooding of cheaply priced cigarettes in the market today that the youth are buying.

Madrona also sees the proposed law to increase revenues for the government through higher tax and VAT collections, as well as institute better enforcement of the law by stipulating significant penalties and imprisonment terms even for those caught selling cigarettes below the MCP.

Different reactions

Introduced about a year ago, it has taken the industry members and relevant stakeholders more than 10 months to finally come up with their own position papers.

Surprisingly, the small players led by Japan Tobacco International Philippines (JTI) and Bulgarian-firm Bulgartabac Philippines declared their full support for the bill.

Philip Morris Fortune Tobacco Corp., which still controls the majority of the market, has rejected the proposed law, while market challenger Mighty Corp., while saying that it supports the intentions of the bill, has asked for more time to study its implications.

This division of the house gives rise to questions about the dynamics of local cigarette marketing, one that remains active and interesting even with the stringent conditions imposed by the Sin Tax Law, and the efforts by relevant government agencies to go after tax evaders and cigarette smuggling.

Not surprisingly, the strong coalition of health advocates and practitioners has also come out with their own position on the MCP bill, albeit on a more cohesive note. Most of them believe the MCP will only benefit the tobacco manufacturers and retailers in the end.

And perhaps rightly so.

Opening a can of worms

One of the main reservations that should be given weight is the fact that revising the current Sin Tax Law could open a can of worms that would negate all the current benefits that are already being reaped from the provisions of a unitary tax system.

In truth, the Sin Tax Law has not only affected the bottom line of the big cigarette retailers, it has also reduced the market share of PMFTC from its previous almost monopolistic position to being just a majority player after Mighty Corp. was able to take a big bite of its previous market share.

With industry players now all hyped up to keep their market shares and profits, there’s no telling how strong and effective its lobbying would be to introduce changes in the MCP bill that ultimately would be unfavorable to the current Sin Tax Law.

As it currently stands, health advocates are already seeing the benefits of the Sin Tax Law in terms of fresh and increased funding for the needs of the public health care system.

Survey results

Sin tax advocates are debunking the claims of the bill author that smoking prevalence especially among the youth has not been reduced with new Sin Tax Law. They counter that the same survey cited in the MCP bill showed a reduction of smoking among the youth to 18 percent from 35 percent.

A recent finding by the National Nutrition and Health Survey also showed a decrease in smoking prevalence to 24.4 percent in 2013 from 35.1 percent in 2008.

Furthermore, Dr. Antonio Dans of the Philippine Society of General Internal Medicine says any proliferation of cheap cigarettes today will be addressed by the Sin Tax Law in 2017 when the full impact of the unitary tax system will be full effective.

In the same breath, additional laws that stipulate increasing graphic health warnings on cigarette packs and limiting advertising of cigarette products should be carried through to ensure smoking prevalence not only among the youth will continue to decrease.

Poor scorecard

The tension between anti-smoking advocates and the tobacco industry has just gone a notch higher so much so there is now a move to boot out the lone tobacco industry representative in Inter-Agency Committee-Tobacco (IAC-T), which has the power to regulate the packaging, use, sale distribution and advertisement of tobacco products.

The health activists accuse the tobacco industry representative of being a mole in the IAC-T that weakens tobacco control policies and policy-making, citing a recent attempt by the tobacco industry representative to water down the draft Graphic Health Warning Implementing Rules and Regulations being discussed.

This had resulted in the Philippines being rated poorly in the implementation of the World Health Organization’s Framework Convention on Tobacco Control, and landing on the third to the last bottom rung among Southeast Asian countries.

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