The Sin Tax Reform Bill

THE SIN TAX REFORM BILLA Public Health and Revenue Imperative

Department of HealthDepartment of Finance

Presidential Communications Development and Strategic Planning Office

Thursday, August 16, 12

The State Protects and Promotes Health

The State shall protect and promote the right to health of the people and instill health consciousness among them. [1987 Constitution, Art II, Sec 15]

The State shall adopt measures which may include tax/price policies on tobacco products so as to reduce tobacco consumption. [Framework Convention on Tobacco Control, Art 6, provision 2 (a)]

Citizens have a right to breathe clean air. [RA 8749, Sec 4(a)]

The State intends to protect the youth from being initiated to cigarette smoking and tobacco use by prohibiting the sale of tobacco products to minors. [RA 9211, Sec. 3(e)]


Common risk factors for lifestyle diseases

Source: Omran et al 1970

EPIDEMIOLOGIC TRANSITION

Mor

talit

y

Development

Lifestyle/NCDs

Infectious Disease


0

2,000

4,000

6,000

8,000

952141

00

1253154

466

885

33812701682

21381761

3532

5280

6704141

1,544

952

885

466

154

1,253

Tobacco use is a risk factor for 6 of the 8 leading causes of death in the world

TOTAL DEATHS: 5,395

Others

Adapted from WHO Report on the Global Tobacco Epidemic (2008)

Ischemic Heart Disease

Cerebro-vascular disease

Lower Respiratory infections

Chronic Obstructive pulmonary

disease

HIV/AIDS Diarrheal Diseases

Trachea, bronchus, lung

cancers

Included in Top 10 Causes of Mortality in the Philippines for 2010

Tuberculosis


THE PHILIPPINES: TOP SMOKING COUNTRY IN SOUTH EAST ASIA


PHILIPPINES: TOP SMOKING COUNTRY IN SOUTH EAST ASIA

The Situation

On average, every Filipino smoker consumes 1,073 sticks every year

CountriesCountriesCurrent smoking of any tobacco products (1)Current smoking of any tobacco products (1) Current smoking of any tobacco products (2) Current smoking of any tobacco products (2)

Per capita cigarette consumption in 2007 (3)

Men Women Boys Girls

Per capita cigarette consumption in 2007 (3)

Philippines

Indonesia

Vietnam

Malaysia

Thailand

Lao PDR

Cambodia

Singapore

Myanmar

53 12 28.3 17.5 1073

62 5 24.1 4.0 974

44 2 6.5 1.5 887

53 3 40.0 11.5 646

43 2 21.7 8.4 634

64 15 7.8 3.9 544

49 7 7.2 3.0 447

36 6 10.5 7.5 406

43 15 22.5 8.2 209

Sources:1. MPOWER report (World Health Organization, 2009). Adult smoking data are age-standardized estimates in 2006. 2. MPOWER report (World Health Organization, 2009). The smoking estimates boys and girls were derived from the Global Youth Tobacco Survey (GYTS). 3. World Cigarettes 1: The 2007 Report. ERC Statistics Intl Pic (ERC, 2007). Per capita consumption is calculated from the total cigarette consumption in 2007 over

the total population (http://esa.un.org/unpp)


SOURCE: WHO Report on global tobacco epidemic:Implementing smoke free environment.Geneva,Switzerland.WHO, 2009

PHILIPPINES: YOUNG SMOKERSThe Situation

17.5%Girls

28.3%Boys

Of the users of tobacco products:(highest in South East Asia)


The poor smoke more than the rich. In ASEAN, the lowest quintile of the population suffer more deaths due to smoking.

The poor suffer the most

0

15

30

45

60

Malaysia Philippines Vietnam Laos Myanmar

Q1 Q2 Q3 Q4 Q5Poorest Wealthiest

From DANS, ET. AL, LANCET 2010

Prev

alen

ce (

%)


Estimated deaths from heart attack and stroke (all risk factors)

Risk Factor Heart Attack Deaths CVD Deaths Total Deaths

Smoking 19,315 29,184 48,499

Cholesterol 8,799 4,053 12,852

Obesity 14,840 20,207 35,047

HPN 15,559 25,401 40,960

Diabetes 3,326 6,864 10,190

Smoking does NOT just cause cancer and lung diseases, it is also the number 1 cause of stroke and heart attack (~50,000 deaths per year). In fact it causes more stroke and heart a than diabetes, hypertension, obesity and high cholesterol - National Nutrition and Health Survey, 2008

Smoking is the #1 preventable risk factor.


ANNUAL COST OF SMOKING TO ECONOMY

Updated Economic Burden of Health Impact of Smoking in the Philippines for 2011

Lung Cancer Chronic Obstructive Pulmonary Disease

Coronary Artery Disease

Cardiovascular Disease

Health Care Costs

Productivity Losses

Premature Death Losses

Total

1.8 billion 14,7 billion 59.5 billion 63.4 billion

11.2 million 146.6 million 847.4 million 929.4 million

4.7 billion 10.1 billion 11.4 billion 9.6 billion

P6.5 billion P24.9 billion P71.8 billion P74 billion

ALL SMOKING-RELATED DISEASE BURDEN: 177 Billion Pesos

From DANS, ET. AL, LANCET 2011


CASE STUDY: THAILANDExcise Tax Rate, Excise Revenue and Smoking Prevalence, Thailand 1991-2007

0

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

35,000.00

40,000.00

45,000.00

50,000.00

1992 1994 1996 1998 2000 2002 2003 2004 2005 2006 2007

Excise Revenue (in million baht)

0

10

20

30

40

50

60

70

80

90

Source: Levy DT, Benjakul S, Ross H, Ritthipkhakdee B. The role of tobacco control policies in reducing smoking and deaths in a middle income nation: results from the Thailand SimSmoke simulation model. Tob Control. 2008: 17(1):53-9.

Excise Rate Excise Revenue Smoking Rate

%


Derived from a simulation model to predict the fiscal and public health impact of a change in cigarette taxes” by Van Walbeek et al BMJ Tobacco Control 2006

PROJECTIONS (IN 10 YEARS)Projected Reduction in Smoking Prevalence and Deaths Averted in the First Year of Excise Tax Increase

0!

50000!

100000!

150000!

200000!

250000!

300000!

350000!

400000!

450000!

0!

5!

10!

15!

20!

25!

30!

35!

0! 5! 10! 15! 20! 25! 30! 35! 40!

Annual % Increase in Excise Tax!

Smokingprevalence (%)

Deaths avertedin 10 years


ALCOHOLConsumption Levels in grams per day

Men Women

Responsible <40 <20

Hazardous 40-60 20-40

Harmful >60 >40

Source: English and Holman,1995


THERE IS MODERATE DRINKING BUT THERE IS NO MODERATE SMOKING

alcohol (M)

alcohol (F)

Source: English and Holman,1995

0

0.27

0.53

0.80

1.07

1.33

1.60

None 0.0-0.9 1.0-1.9 2.0-2.9 3.0-3.9 4.0-4.9 5.0-5.9 6.0+

1.0





THE ECONOMICS OF SMOKING


The costs of smoking greatly outweigh the revenues from tobacco taxes

Excise Tax in Tobacco vs. Economic Costs of Smoking(in Billion Pesos)

0

29

57

86

114

143

171

200

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

26.031.7

24.227.623.226.823.723.120.020.119.417.416.516.8

Tobacco Products

Economic costs of smoking of Php177 Billion

Source: BIR and DANS, ET. AL, LANCET 2010)

Low tobacco prices = High public health costs


Philippines is one of the countries with the cheapest cigarettes in the world

Singapore

Vanuatu

Australia

Tonga

New Zealand

Malaysia

Samoa

Japan

Brunei Darusalam

Vietnam

Mongolia

Lao PDR

China

Philippines

0 1 2 4 5 6 7 8 10 11 12

Cheapest Brand Most Sold Brand

Source: WHO

Price in USD


Philippines also has one of the lowest excise tax rates in the world

Source: WHO

0

1

3

4

5

Egypt Poland Turkey Thailand Ukraine Bangladesh Philippines Mexico Pakistan Indonesia Vietnam India Brazil China Russia

Retail Price Excise Tax

in USD


First: Because of the price classification freeze, cigarettes are cheaper than they should be.

Source: BIR

3 most sold

brands

Price Class fixed by law (Sec.

145)

Average Net Retail Price as of Dec 2010

If no price class

freeze, net price

should be

Excise tax paid per

pack as of 2010

If no price class

freeze, excise tax per pack should be

Tax variance per pack

Brand A NRP < 5LOW P9.49

6.50 ≤ NRP≤ 10

HIGH

P2.47 sinceLOW P11.43 P8.96

Brand B5 ≤ NRP≤ 6.50

MEDIUMP17.95 NRP > 10

PREMIUMP7.14 sinceMEDIUM P27.16 P20.02

Brand C6.50 ≤ NRP≤ 10

HIGHP14.78 NRP > 10

PREMIUMP11.43 since

HIGH P27.16 P15.73


Second: Non-indexation makes cigarettes more affordable over time, to the detriment of public health objectives.

AFFORDABILITY INDEX - CIGARETTES CY 2000-2011

Source: NSO and NSCB

- !

0.20 !

0.40 !

0.60 !

0.80 !

1.00 !

1.20 !

2000! 2001! 2002! 2003! 2004! 2005! 2006! 2007! 2008! 2009! 2010! 2011!

index low (base year 2000)! index medium (base year 2000)! index high (base year 2000)!


Third: Multi-tiered structure allows smokers to downshift to lower-priced cigarettes.

0%

20%

40%

60%

80%

100%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Low-priced Middle-priced High-priced

Source: BIR

Share to total

volume


RESULTING IN FOREGONE REVENUES which could have been spent on healthcare services such as:

Php19.5 B due to

downshifting in cigarettes

(2006-2010)

Premium subsidy to 8M indigent families in PhilHealth

Rotavirus vaccine to 29M children

203,125 RN Heals nurses

Influenza and Pneumonia vaccine to 11M senior citizens

Various vaccines to 9M children


3 most sold

brands

Price Class fixed by law (Sec.

145)

Average Net Retail Price as of Dec 2010

If no price class

freeze, net price

should be

Excise tax paid per

liter as of 2010

If no price class

freeze, excise tax per liter

should be

Tax variance per liter

Brand A NRP < 14.5LOW P48.06 NRP > 22

HIGHP9.65 since

LOW P19.05 P9.40

Brand B14.50 ≤ 22.00

MEDIUMP45.47 NRP > 22

HIGHP14.35 sinceMEDIUM P19.05 P4.70

Brand C NRP ≤ 14.50LOW P28.74 NRP > 22

HIGHP9.65 since

LOW P19.05 P9.40

First: Because of the price classification freeze, beer is cheaper than it should be

Source: BIR


- !

0.20 !

0.40 !

0.60 !

0.80 !

1.00 !

1.20 !

2000! 2001! 2002! 2003! 2004! 2005! 2006! 2007! 2008! 2009! 2010! 2011!

San Miguel Pale Pilsen, 320 ml bottle! Ginebra San Miguel, 350 ml bottle! Tanduay 5 Years, 375 ml bottle ! Tanduay ESQ, 375 ml bottle!

Second: Non-indexation has made alcohol products more affordable relative to their 2000 prices

AFFORDABILITY INDEX - ALCOHOL CY 2000-2011

Source: NSO and NSCB

Beer Brand A Gin Brand B Rhum Brand C Rhum Brand D


0%

25%

50%

75%

100%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Low-priced Middle-priced High-priced

Third: Multi-tiered structure also fosters downshifting of consumption to lower-priced beer products

Source: BIR

Share to total

volume


RESULTING IN FOREGONE REVENUES which could have been spent on healthcare services such as:

Php12.9B due to downshifting in

beer (2006-2010)

Premium subsidy to 5.4M indigent families in PhilHealth

Rotavirus vaccine to 19.2M children

134,375 RN Heals nurses

Influenza and Pneumonia vaccine to 7.5M senior citizens

Various vaccines to 6.2M children


With respect to distilled spirits, WTO compliance is a must

With respect to distilled spirits, WTO compliance is a must

Current System House Approved

Taxation based on raw material content.

A. Produced from sap of nipa, coconut, cassava, camote, or buri palm or from juice, syrup or sugar of cane: P 14.68

B. Produced from other raw materials, the tax shall be based on 750ml volume capacity:

If NRP less than P 250 - P 158.72 P250 to P 675.00 - P 317.45 More than P 675.00 - P 634.89

✓Original proposal to base taxation on alcohol content not accepted by Congress. ✓Removed raw materials as a basis for taxation. Taxation (per proof liter) based on 750 ml volume capacity:

If NRP less than P 90 - P 20 P90 to P150 - P 80 More than P 150 - P 320

✓8% increase in tax rates every two years effective Jan. 1, 2015 up to Jan. 1, 2025.

✓Reclassification every two years.


ESTIMATED INCREMENTAL REVENUES UNDER HOUSE APPROVED BILL (In Billion Pesos)

Year Cigarettes Distilled Spirits

Fermented Liquor Total

2013 26.87 1.45 3.03 31.35

2014 34.72 1.78 2.52 39.02

2015 36.27 2.62 3.79 42.68

2016 35.38 3.03 3.10 41.51

Source: BIR




Documents

The Sin Tax Reform Bill