Jeremias N. Paul Jr.

World Health Organization

Philippine Sintax Reform:

A Win-Win for

Revenues and Health

PRESENTATION OUTLINE

I. Background

II. Impact of Sin Tax Reform

III. Concluding Remarks

Aquino Administration Social Contract with the Filipino People including Universal Health Care.

“No new taxes” promise of President Aquino.

Philippines among top smoking countries in Southeast Asia. Tobacco taxes and prices among lowest in the world.

Strong tobacco lobby with deep business and political connections. Tobacco lobby hindered previous excise tax reform efforts.

Alcohol: Deadline for Philippine compliance to WTO decision on distilled spirits.

Tight deadline during Aquino Administration – one year to make it happen.

The Philippines ratified the WHO Framework Convention on Tobacco Control in 2005.

BACKGROUND

RATIONALE FOR REFORM

Help finance Universal Health Care (UHC).

Address public health issues relating to alcohol and tobacco consumption.

Simplify the current excise tax system on alcohol and tobacco products and fix long standing, structural weaknesses: Remove price/brand classification freeze. Level the playing field. Reduce number of tiers. Make tax system more buoyant by indexing tax rates

to inflation.

REPUBLIC ACT NO. 10351 An Act Restructuring the Excise Tax on

Alcohol and Tobacco Products (RA

10351)

(Signed into Law - Dec. 19, 2012)

Landmark Legislation under the

Aquino Administration.

Fundamentally a good governance

measure with positive impact on both

fiscal and public health.

Section 8 (C): After deducting the allocations under Republic Act Nos. 7171 and 8240 (allocations to tobacco farmers),

Eighty percent (80%) for:

National Health Insurance Program

Attainment of the Millennium Development Goals

Health awareness programs

Twenty percent (20%):

Medical assistance

Health enhancement facilities program

Incremental revenues earmarked for health

REPUBLIC ACT NO. 10351

Philippine Tobacco Tax Reform Path at a Glance

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2012 2013 2014 2015 2016 2017

In Philippine Peso

Key Features Removal of price classification freeze/tax

advantages of legacy brands.

Unitary tax structure by 2017.

Tax rates indexed to inflation starting

2017.

Health impact/WHO FCTC compliance a

major consideration in rate setting.

Bulk of incremental revenues earmarked

for UHC.

Safety nets for tobacco farmers/others.

Low

Medium

High

Premium

Tier 2

Tier 1 Unitary

341%

In Billion Pesos 2013 2014 2015 2016 2017

Projected Incremental

Revenue (Tobacco)23.4 29.6 33.5 37.1 40.9

Projected Incremental

Revenue (Alcohol)10.6 13.3 17.1 19.8 23.3

Projected Incremental

Revenue (Total)34.0 42.9 50.6 56.9 64.2

Estimated Earmark for

Health as of 201230.5 38.4 45.6 51.3 58.0

5.6

14

19

0

1

2

3

4

5

6

0

2

4

6

8

10

12

14

16

18

20

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Weighted Average Tax Rate (Peso per Pack) Volume of Removals (Billion Packs)

Tax rate

rose

150%

36%One time, 12%

increase in 2000

(RA 8240)

2004 Sin Tax Law (RA 9334)

Bi-annual tax increases

(2005 – 2011)

2012 Sin Tax

Law

(RA 10351)

Historically excise tax increases were gradual

… Focus on health changed this.

KEY ISSUES RAISED

Raising tobacco taxes …

will reduce NOT increase revenues.

will adversely affect tobacco farmers.

will increase smuggling and illicit trade.

will negatively impact the poor.

will increase unemployment.

will destroy the local tobacco industry.

LEGISLATIVE PROCESS

Malacañang Palace

Enrolment of Ratified Bill Signing of Republic Act 10351

Bicameral Conference CommitteeReconciliation of

Disagreeing ProvisionsApproval and Signing of

Bicameral Conference ReportRatification of Committee Report by both chambers of Congress

Senate of the Philippines

Senate Committee on Ways and Means Plenary Debates

House of Representatives

House Committee on Ways and Means Plenary Debates

WINS OF SIN TAX REFORM

Credits to: Manix Abrera, GMA News Online

Passed the Senate by only one vote.

Win for RevenuesActual incremental revenues higher than projected.

34

42.9

50.6

56.9

64.2

51.2 50.2

73.16.1 6.0

8.8

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2013 2014 2015 2016 2017

In b

illiio

n P

eso

s

Projected vs. Actual Incremental Revenue from RA 10351

Projected Actual BIR VAT

$ 0.80 B

$ 1.21 B

$0.15 $0.14

$0.19

$ 0.97 B

$ 1.13 B

$ 1.11 B

$ 1.61 B

$ 1.29 B $ 1.46 B

Win for RevenuesSin Tax Law reversed the declining trend of tobacco

and alcohol excise collections to GDP.

Source: BIR and NSCB

0.9%

0.8% 0.8% 0.8%

0.7%

0.8%

0.7% 0.7%

0.6% 0.6% 0.6% 0.6%

0.5% 0.5%

0.9% 0.9%

1.1%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

1.0%

1.1%

1.2%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Tobacco & Alcohol Excise Collection

Tobacco & Alcohol Excise Collection

Win for RevenuesTobacco taxes accounted for bulk of collections with share

of tobacco excise tax collections to GDP highest in 2015.

Source: BIR and NSCB

0.5%0.5% 0.5%

0.5%

0.4%0.5%

0.4% 0.4%

0.3%0.4%

0.3%

0.4%

0.3%

0.3%

0.6% 0.6%

0.8%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Tobacco Excise Tax Collection

Tobacco Excise Tax Collection

FITCH RATINGS

Investment Grade BBB- Stable (March 27, 2013);

Affirmation (March 25, 2014);

Upgraded to BBB- Positive (Sept 24, 2015)

JAPAN CREDIT RATING

AGENCY (JCRA)

Investment Grade BBB/Stable (May 7, 2013);

Affirmation (May 30, 2014);

Upgraded to BBB+ /Stable (July 6, 2015)

STANDARD & POOR’S

Investment Grade BBB-/Stable (May 2, 2013)

Upgraded to BBB /Stable (May 8, 2014)

Affirmation (April 24, 2015)

RATING & INVESTMENT (R&I)

INFORMATION, INC.

Investment Grade BBB/Stable (July 9, 2014);

Affirmation (July 20, 2015)

MOODY’S

Investment Grade Baa3 Positive (Oct. 3, 2013);

Upgraded to Baa2 Stable (Dec. 11, 2014)

Win for the EconomySin Tax Law made possible Philippines’ first investment grade rating.

$ 1.9 B $ 2.0 B

$ 1.3 B

$ 1.0 B

$ 0.7 B$ 0.5 B

$ 0.5 B$ 0.4 B$ 0.2 B

Source: GAA, DBM

Win for Public HealthHealth Budget almost triple 2012 levels

Excise tax collections from locally manufactured

cigarettes rise steeply as volume drops.

Source: BIR

Win for Revenues and Public Health

0.0

2.0

4.0

6.0

8.0

10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Excise Tax Collections on Locally manufactured cigarettes Volume of Removals (B Packs)

0.5 0.5 0.5 0.5 0.82.9 3.5 4.5 5.0 5.0 3.5

12.512.6

35.337.1

43.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

National Government Allocation for

Health Insurance Premiums for the Poor

Source: PhilHealth, DOH, GAA

Win for the Poor

$0.01 B$0.01 B $0.01 B $0.02 B

$.06 B $.08 B$.10 B

$.10 B$.11 B $.08 B

$.30 B

$.30 B

$.79 B

$.92 B

$.82 B

$0.01 B

Sin Tax Law increased the

number of people with free health

insurance – from 5.2 million poor

primary members in 2012 to 15.4

million in 2015.

Win for the Young and the Poor

Results of the Smoking Prevalence Study of Dr. Antonio Dans based on National Nutrition Health Survey 2013 and 2015 data:

Prevalence of smoking among adult Filipinos went down from 31.0% in 2008 to 25.4% in 2013, and then to 23.3% in 2015.

There are about 4.0 million less smokers in the country because of the Sin Tax Law.

The drop is partly from people who stopped smoking. It is mostly from people who avoid starting to smoke.

At least 70,000 death have been averted since 2013.

Health benefits were greatest in price sensitive populations – the poor, rural folk, the very old, and the very young.

Smoking Prevalence has declined.

CONCLUDING REMARKS

Sintax Reform has generated US$3.9 billion

incremental revenues in its first three years of

implementation with about 80% accounted for by

tobacco taxes. Indeed, raising tobacco taxes is a

low lying fruit for raising domestic revenues for

health.

Earmarking revenues for health has almost

tripled the health budget over 2012 levels and

allowed the Philippine National Government to

provide free health insurance to the poor and

near poor (bottom 40% of the population).

CONCLUDING REMARKS

Aim high for health. Framing sintax as a health

measure allowed the Philippines to raise tobacco

taxes substantially, than otherwise possible if it

was framed as a revenue measure.

Political support at the highest level is important.

Finance, health and other ministries need to

collaborate and adopt a systems and whole of

government/society approach.

Need to be vigilant and systematically monitor

progress and outcomes.

CONCLUDING REMARKS Excerpt of Speech of President Aquino

during the signing of Sin Tax Law –

“… Many thought it was impossible to pass the

Sintax reform bill: the enemy is strong, loud,

organized, and has deep pockets but, as we

have proven time and again, nothing is

impossible with the Filipino Nation rowing in

one direction, heart in the right place, and ready

to stand up for its principles… ”

THANK YOU