Sin taxes hiked; VAT on essential drugs lifted

MANILA, Philippines — President Duterte has signed Republic Act 11467, which amends the National Internal Revenue Code by expanding the coverage of value-added tax on vape, tobacco and liquor.

The new law, signed last Wednesday, also exempts the imposition of VAT on the sale or importation of prescription drugs for diabetes, high cholesterol and hypertension beginning Jan. 1 this year and those for cancer, mental illness, tuberculosis and kidney beginning Jan. 1, 2023.

Vape products are to be taxed gradually from 2020 to 2024 from P37 per milliliter or a fraction thereof to P52 per ml until Jan. 1, 2022. Through the revenue regulations issued by the secretary of finance, the rates of tax shall be increased by five percent effective Jan. 1, 2024.

For distilled spirits, an excise tax shall be levied, assessed and collected from Jan. 1, 2020 until 2024. An ad valorem tax equivalent to 22 percent of the net retail price (excluding excise tax and value-added tax) per proof will be imposed effective Jan. 1 this year.

On wines, an excise tax equivalent to P50 per liter is imposed effective last Jan. 1 Fermented liquors– except basi, tuba and tapuy – will be taxed P35 per liter with an increase of three pesos a year until 2024. The rates of the tax will be increased by six percent on Jan. 1, 2025 through the revenue regulations that would be implemented by the secretary of finance.

As for tobacco products, P25 tax per pack will be imposed immediately this month, gradually increasing by P2.50 a year until Jan. 1, 2024. It will then be increased by five percent every year. ?Duterte welcomed the passage of the measure, which would promote the “government’s efforts to protect the public health from the ill-effects of sin products.”

“It will also ensure equitable access and affordable healthcare services to every Filipino through the additional revenues for the implementation of Republic Act 11223 otherwise known as the Universal Health Care (UHC) Act,” he said.

The Department of Health (DOH) is required to issue a list of approved drugs and medicines 60 days from effectivity. 

Under Republic Act 11467, 60 percent of the revenues from excise tax on alcohol products, heated tobacco and other vapor products will be used for the implementation of the UHC Act of 2019; while 20 percent will be allocated for medical assistance, health facilities enhancement programs and the annual requirements of the DOH. The remaining 20 percent will be allocated for the attainment of Sustainable Development Goals.

 Vetoed provision

The President vetoed Section 5 of RA 11467, saying this curtails the powers of the Bureau of Internal Revenue (BIR). 

“I am constrained to veto Section 5 of the measure, which amends the second paragraph of Section 152 of the National International Revenue Code (NIRC) as this unduly curtails the search and seizure powers of the Bureau of Internal Revenue,” Duterte said.

In his view, the section curtails the power of the state to collect taxes and makes the BIR powerless in implementing enforcement mechanisms against illicit tobacco products.

He noted that “the phrase ‘upon the order of the court’ unnecessarily requires the BIR, in the exercise of its mandate to examine, search and seize under Section 171 of the NIRC, as amended, to secure an order from the court before its officers may be allowed to enter any house, building or place where tobacco, heated tobacco and vapor products are produced or kept, or are believed to be produced or kept.”

“Such restriction does not exist with respect to any other taxable article,” the President said, citing his veto powers as Chief Executive.

He commended the Senate and the House of Representatives in acknowledging the “unregulated manufacture, proliferation, distribution and use of heated tobacco products and vapor products in the country” and for considering the establishment of a framework by the Food and Drug Administration (FDA) to regulate heated tobacco and vape products.

Duterte directed the FDA to formulate at once the intended regulatory framework and the relevant agencies to immediately operationalize the regulations.

“I am confident that the multi-tiered effect of this law as a cost-effective health measure to reduce smoking and alcohol consumption among Filipinos support the UHC Act. Coupled with positive impact in improving domestic resource mobilization, this measure will significantly reinforce and advance this administration’s commitment to provide a better quality of life for every Filipino,” he said.   

Additional revenue

House leaders said the new sin tax law would bring in P17 billion in additional revenue for the government’s universal health care program.

“We thank President Duterte for again acting decisively for the benefit of the Filipino people. This law will benefit the nation not only in terms of public health but also in the effective implementation of social programs of the administration through the revenue to be raised from this measure,” said Deputy Speaker Mikee Romero.

Rep. Joey Salceda, ways and means committee chairman, described the new law as “life-saving” because it “would save thousands of lives through healthier consumption of products, while saving hundreds of thousands more due to enhanced funding for universal health care.”

Salceda said Department of Finance (DOF) figures indicate that alcohol may have an economic cost of as much as 1.7 percent of annual gross domestic product, equivalent to about a third of the country’s annual health expenditure. 

“My own estimates come somewhere closer to 2 percent of GDP, when you account for lost productivity on those who did not use alcohol, but were somehow harmed by someone who was under the influence of alcohol. If you could recover all of that, theoretically we could be growing by 8 to 9 percent every year, not to mention we would be healthier,” he revealed.

He also cited the benefits of the law in terms of road safety as he pointed out that alcohol accounts for as many as 10,372 road crashes every year.

“Alcoholism is linked to about 40 main diseases, including liver cirrhosis, cancer, pancreatic disease, hypertensive disease, tuberculosis, diabetes and mental diseases. From the data of the World Health Organization, some 4,431 per 100,000 population of Filipinos died from liver cirrhosis; 16,418 from hypertensive diseases; and 8,526 from tuberculosis – all linked to excessive use of alcohol. Surely, any move that reduces the average national consumption is good news,” he added.   

Secretary Francisco Duque III said the Department of Health (DOH) sees a significant decline in the incidence of non-communicable diseases in the country with the tax increases.

“This is a win-win situation for all. This will give us an enormous strategic advantage in reducing non-communicable diseases and providing the necessary restrictions in the accessibility and availability of harmful products, especially among the youth,” his statement read.

Duque said the law would make alcohol, tobacco and novel tobacco product derivatives less affordable while allowing stricter rules on e-cigarettes and HTPs.

The health chief added that the DOH is vigorously monitoring and reviewing the prices of pharmaceutical products “to ensure the most affordable medicines for our people.”

“As medicines become cheaper, more Filipinos would be able to afford life-saving medicines without worrying about financial risk,” he noted. With Edu Punay, Mayen Jaymalin