MAKING SIN TAX REFORM HAPPEN: THE PHILIPPINE EXPERIENCE

PRESENTED BY:UNDERSECRETARY JEREMIAS PAUL, JR.DEPARTMENT OF FINANCE

World Bank Human Development WeekWashington, D.C., February 6, 2013

Outline of Presentation

I. BackgroundII. Rationale for ReformIII. Features of R.A. 10351IV. Key Success FactorsV. Concluding Remarks

BACKGROUND Philippines is among the top smoking

countries in Southeast Asia. Strongest tobacco lobby in Asia. Cigarette taxes and prices are among

lowest in the world. Smoking is the no. 1 preventable risk

factor for premature death. Economic burden of smoking dwarfs

revenues collected from cigarette excise taxes.

Annual cost of smoking to economy – Php 177 Billion

RATIONALE FOR REFORM To help finance PNoy’s Universal Health Care

Program (UHCP). To simplify the current excise tax system on

alcohol and tobacco (A&T) products and fix long standing, structural weaknesses:

Remove price/brand classification freeze Reduce no. of tiers, preferably to one. Make tax system more buoyant by

indexing tax rates to inflation. Address public health issues relating to

alcohol and tobacco consumption.

FEATURES OF R.A. 10351 Removal of price/brand classification freeze. Gradual shift to unitary taxation. Annual indexation of excise tax rates. Funding of Universal Health Care. Additional funding for tobacco farmer’s

livelihood support. WTO compliance on distilled spirits. Adherence to WHO FCTC Commitment on

cigarettes. Generation of revenues for government.

KEY SUCCESS FACTORS Focus on Health Political Support at the highest levels Constructive engagement with

stakeholders Just-in-time analytical support Strategic communications Effective use of strategy and tactics

Focus on Health Importance of framing reform in

terms of health aspects. Broad-based political support for

Universal Health Care. Ultimate response to critics of sin tax

reform: “This is a health measure.” Politicians do not want to be seen as

being against health.

Political Support Unwavering support from President Aquino Unqualified support from Chairs of Ways &

Means Committees in Congress: Congressman Ungab and Senator Drilon

Support from leadership of League of Mayors and League of Governors

Cooperation among Executive Departments, e.g. DOF, DOH, DBM, DA, OP, BIR etc.

Constructive Engagement with Stakeholders

Importance of listening and reaching out.

Health advocates were critical partners.

Dialogue with industry players and other affected stakeholders.

Disclosed both negotiable and non-negotiable reform parameters. Need to be firm while maintaining flexibility.

Just-in-time Analytical Support Importance of evidence-based research

and scenario modeling. Analytical support from World Bank,

WHO, IMF and academe. Usefulness of knowledge portals on

tobacco control available in the Internet. Constant vetting of analytical results. Is a necessary but not sufficient

condition.

Strategic Communications Grounded on evidence-based research. Importance of issues being

communicated and understood by the “man on the street”.

Coordinated messaging but decentralized implementation.

Focused on health aspects and how sin tax reform can generate more revenues while saving more lives.

Effective use of strategyBegin with the end in mind.Choose your battles.Becomes more important in the context of budgetary constraints.

How to beat a protagonist with deep pockets.

CONCLUDING REMARKS No single success factor. It is a

confluence of many. Sin tax reform is not only a revenue

and health reform measure. It is also, more fundamentally, a good governance measure.

We cannot be complacent. We need to ensure effective implementation of reforms.

THANK YOU!

The poor smoke more and have less access to health care

High incidence of smoking is highest among the poor – WHS and DHS DATA

Female smokers (DHS 2003) Adult smokers (WHS 2003)0

5

10

15

20

25

30

35

40

45

Lowest quintile 2 34 Highest quintile

Bad access to health care when ill from tobacco- and other - illnesses

Used outpatient care in last year Used inpatient care in last year0

5

10

15

20

25

30

35

40

Poorest quintile 2 34 Wealthiest quintile

Low cigarette taxeskeep cigarettes affordable

Prices are low internationally

As % of GDP

IF REFORMS NOT INSTITUTEDExcise tax collections of alcohol and

tobacco as a % of GDP will continue to decline

0% 13%100%200%225% 267%300%400%500%% Increase in Excise Tax19.0519.8625.2631.4733.0235.6337.6843.8950.09Average retail price (PhP)

28.230.7 0.14

4

25.431.00.00

0

45.4 29.3 0.92

28

62.6 28.0 1.62

48

73.1 27.2 1.99

60

78.0 26.9 2.16

65

106.0 25.4 2.95

89

92.4 26.1 2.59

78

66.5 27.7 1.76

53

28.1 30.7 0.17

5

44.1 28.8 1.15

35

59.5 27.2 2.02

61

68.7 26.3 2.49

75

72.9 25.9 2.70

81

96.5 24.0 3.69 111

85.1 24.9 3.24

97

63.0 26.8 2.20

66

28.0 30.60.20

6

42.9 28.4 1.38

41

56.6 26.4 2.42

73

64.5 25.4 2.99

90

68.2 24.9 3.24

97

87.7 22.6 4.43 133

78.4 23.7 3.89 117

59.7 26.0 2.64

79

3.78 27.9 30.5 0.24

7

41.7 28.0 1.61

48

53.8 25.7 2.83

85

60.6 24.4 3.49 105

63.6 23.9 113

79.5 21.3 5.16 155

72.0 22.4 4.54 136

56.4 25.2 3.09

93

27.8 30.5 0.27

8

40.6 27.5 1.84

55

51.2 24.9 3.23

97

56.8 23.5 3.99 120

59.3 22.9 4.32 129

71.9 19.9 5.90 177

66.1 21.2 5.19 156

53.4 24.3 3.53 106

Excise Tax Revenue (PhP B)Smoking Prevalence (%)Smoking Quitters (Millions)Deaths prevented (thousands)

Elasticity = -0.4

Excise Tax Revenue (PhP B)Smoking Prevalence (%)Smoking Quitters (Millions)Deaths prevented (thousands)

Elasticity = -0.5

Excise Tax Revenue (PhP B)Smoking Prevalence (%)Smoking Quitters (Millions)Deaths prevented (thousands)

Elasticity = -0.6

Excise Tax Revenue (PhP B)Smoking Prevalence (%)Smoking Quitters (Millions)Deaths prevented (thousands)

Elasticity = -0.7

Excise Tax Revenue (PhP B)Smoking Prevalence (%)Smoking Quitters (Millions)Deaths prevented (thousands)

Elasticity = -0.8

25.431.0 0.00

0

25.431.0 0.00

0

25.431.00.00

0

25.431.00.00

0