DOF to urge Congress to pass higher tobacco tax rates to further discourage smoking, raise more healthcare funds

Date Posted : April 29, 2019

DOF to urge Congress to pass higher tobacco tax rates to further discourage smoking, raise more healthcare funds

Date Posted : April 29, 2019

The Department of Finance (DOF) will “try its best” until the last minute to convince the Congress to impose new “sin” tax rates on tobacco products that will make cigarettes pricey enough to further discourage smoking, especially among teenagers.

Finance Secretary Carlos Dominguez III said increasing the current tobacco excise tax rates to levels that would effectively curb smoking, particularly among the youth, would also help supplement funds for the Universal Health Care (UHC) program, especially for the treatment of smoking-related diseases.

“There’s still the Senate. We will try our best. This thing doesn’t end until the President signs it. We’re there, we’re keeping at it. We hope that they will come up to what is good for the country,” said Dominguez during a recent press briefing.

Dominguez’s statement was in reaction to the recent approval by the House of Representatives on third and final reading of House Bill 8677, which provides for an increase in tobacco excise tax rates to levels that did not go far enough to what the Department of Health (DOH) and anti-tobacco and health advocates have recommended. The House-approved bill aims to raise the current tax of P35 per pack of cigarettes to P37.50 beginning July 2019. The bill also calls for another increase to P40 in July 2020, P42.50 in July 2021, and P45 in July 2022. Thereafter, the rate shall be raised four percent every July annually.

The DOF proposal supports the position of Rep. Angelina Tan to raise the tobacco excise tax to P60 per pack in 2019 and increasing it by nine percent annually thereafter.

“The society has to agree what is more important: enough money for healthcare or favoring companies that produce products that damage health? That’s what society has to agree on, and that’s what the representatives in the legislature ARE supposed to reflect,” Dominguez said.

Citing the testimonies of resource persons heard by the House ways and means committee during its deliberations on the proposed new tobacco tax rates, Dominguez said the higher excise taxes on cigarettes under the Sin Tax Reform Law have led to a drop in the number of smokers by roughly a million people per year, with fewer teenagers getting into the habit, and a corresponding increase in revenues that are spent on treating Filipinos with smoking-related diseases.

“Our revenues have to keep on going up because we are supporting a lot of people who are getting sick from smoking. That was all the testimony. I was reading the summary of the testimonies, it’s overwhelmingly in favor of higher taxes for health reasons,” Dominguez said.

A recent news release by the House of Representatives posted on its website quoted Dr. Antonio Dans of the National Academy of Science and Technology (NAST) as saying that preliminary calculations project about 150,000 new smokers as a result of the rates approved by the House ways and means committee.

Dominguez said: “Are we going to favor a few for the benefit of many? Again, it’s up to the Legislature. We will continue our position, try to show the results why it is beneficial to have higher taxes.”

Imposing higher taxes on tobacco products has proven to be both an effective and beneficial measure in terms of discouraging cigarette consumption, especially among the youth, while reducing healthcare costs for smoking-related diseases and raising more funds for pro-health programs, according to Finance Assistant Secretary Antonio Joselito Lambino II.

Lambino said the government considers taxes on “sin” products more of a health measure than a revenue tool that is meant to save Filipino lives.

Hence, the decline in the volume of cigarette production that corresponded with the increase in cigarette prices should be viewed as a positive development, in keeping with the target of the Department of Health (DOH) to reduce smoking prevalence from 22 percent in 2015 to 15 percent by 2022.

Lambino pointed out that while the government is collecting around P100 billion on average from the tobacco excises since the implementation of the Sin Tax Reform Law (Republic Act 10351), the estimated economic cost of just the top four smoking-related diseases–according to the World Health Organization (WHO)–is twice that amount at P210 billion a year.

These WHO estimates still exclude 38 other life-threatening diseases caused by smoking.

“Thus amending the Sin Tax Reform Law to enable additional price increases on tobacco products is a win-win measure in terms of health, equity and revenues,” said Lambino, who is also the DOF spokesperson.

“One, it is an effective pricing strategy to reduce smoking; second, a healthier population leads to lower healthcare costs; and third, raising tobacco taxes generates substantial revenues for healthcare expenditures like universal healthcare, which benefits primarily the poorest of the poor,” he said.

Moreover, cigarette tax increases do not adversely affect local tobacco farmers but even benefit from them, as shown by data from the National Tobacco Administration (NTA) and the Philippine Statistics Authority (PSA), he added.

Official data show that after the effectivity of the Sin Tax Reform Law, tobacco leaf production and hectarage even increased in 2013 and 2014, and led to a decline in the importation of unmanufactured tobacco, which meant manufacturers were sourcing raw materials for cigarette production locally, he said.

Tobacco farmers also benefit from this law, he added, because 15 percent of the revenue proceeds from sin tax reform continue to be allocated to local government units (LGUs) hosting tobacco growers. From P5.6 bilion in 2014, the share of host LGUs steadily increased to P10.7 billion in 2015, to P13 billion in 2016, and to P17.1 billion in 2017.

The decrease in the number of tobacco farmers, meanwhile, cannot be attributed to higher excise taxes, but to the introduction of other profitable farming opportunities available to them, such as shifting to high-value crops, which is also the intent of sin tax reform, Lambino said.

He said the government, through the Department of Labor and Employment (DOLE) and the Technical Education and Skills Development Authority (TESDA), continues to work together to assist displaced workers in the tobacco industry by providing alternative and viable employment opportunities to them.

“The welfare of tobacco farmers should be addressed through an expenditure policy, not through the tax structure,” Lambino said. “If, indeed farmers are at risk because of higher tobacco taxes, the Department of Agriculture, NTA and the host LGUs should have used the earmarked funds intended for tobacco farmers as provided in the law.”


Date Posted April 29, 2019

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